Title

Presentation

Operator: Good day, everyone. And thank you for standing by. My name is Argie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Caliber Q1 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now like to turn the call over to Ilya Grozovsky, Vice President of Investor Relations and Corporate Development. Please go ahead.

Ilya Grozovsky: Thank you. Good afternoon, everyone. Welcome to Caliber’s first quarter 2025 financial results conference call. With me today are Chris Loeffler, Chief Executive Officer and Co-Founder, and Jade Leung, Chief Financial Officer of Caliber. 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 for questions. As a reminder, the information discussed today may include forward-looking statements that involve the risks and uncertainties. Words like believe, expect, and anticipates refer to our best estimates 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. Further information on the company’s risk factors is contained in the company quarterly and annual reports and filed with the Securities and Exchange Commission. It is now my pleasure to turn the call over to Chris. Go ahead.

John Loeffler, II: Thank you, Ilya. Thank you to our investors, employees, and participating call attendees. The first quarter of 2025 reflected a continuation of the strategic repositioning we began in late 2024. As expected, this was a transitional period, but we remain focused on achieving profitability in 2025, a goal that we believe is within reach, particularly in the second half of the year. Through the first quarter of 2025, we continued to execute a series of cost savings initiatives and expect their full impact to materialize starting in Q3. Our objective is to obtain an annual EBITDA margin of 25% or greater on a sustainable basis. Despite ongoing market headwinds, we are encouraged by signs of stability across commercial real estate values, and we believe we are entering a window of long-term opportunity, especially for groups like Caliber with experience in complex and distressed transactions.

We are now a more focused company, centering around three core verticals, hospitality, multifamily and multi-tenant industrial investing. These asset classes offer the greatest opportunity for scalable and fee growth. As a result of this narrowed focus, we are reducing exposure to long-term development activities that do not generate current rents to a targeted maximum of 30% of our portfolio. We are executing this change through the orderly completion and sale of our existing developments, which we believe will generate cash for new investments and revenue growth in Caliber’s asset management fees. To continue to grow our AUM, Caliber has sought new asset-level financing, moving forward with key construction and development projects, and we are pleased to report the financing environment for commercial real estate has begun to improve.

More muted access to certain core real estate financing strategies has impacted our prior results, and an improving environment gives us confidence that our strategies to increase AUM will yield a more attractive growth path going forward. In Q1, we updated and published our platform performance, financial supplement, which excludes consolidated fund financials and offers a more simple and transparent view of our operating business. This document, now covering the period between 2019 through Q1 of 2025, is available on our website, and we encourage you to review it. We believe you will find valuable insights to Caliber’s past and current financial performance through reviewing this document and following the KPIs included in each quarter. We also introduced a new performance allocation estimate in our 10-K, which is a significant milestone in investor transparency.

As of March 31, 2025, Caliber’s estimated performance allocations, or carried interest as it’s sometimes referred to in our industry, totaled $87.7 million. This amount is not included in our GAAP financials, and we consider it pertinent to the estimated net worth or book value of our business. We intend to update this estimate regularly as we grow AUM and progress towards monetization events to capture these performance allocations. Continuing with some of Caliber’s business updates. In March, Caliber announced our offering of Series AA cumulative redeemable preferred stock had been qualified by the SEC and the company is seeking to raise up to $20 million through the offering. Since that announcement, we have been building a syndicate of broker to distribute the offering and are pleased to report we have made significant progress to that end.

The offering has brought in its first investments and our team expects to raise the full $20 million in the near term. Also in March, Caliber announced the launch of its 1031 exchange program, a tax deferral strategy that allows real estate investors to sell a property and reinvest all of the proceeds into one or more new properties while deferring capital gains taxes. We believe this program offers an attractive combination of a new and growing channel for capital, matched to a channel for Caliber to acquire and manage more stable income producing assets. Finally, before I move on to discuss our funds and our assets, I will touch on fundraising. Fundraising in Q1 remained challenging through, though wholesale distribution continued to gain traction during the period.

We are happy to report that, in the first quarter of 2025, we matched in wholesale fundraising the same total capital we raised in all of 2024 from that same channel. We continue to make progress with new selling agreements and deepening relationships with high-quality investment professionals. Caliber’s strategy in this arena is relationship-based. We’re seeking to build real relationships with real people and seeking to offer financial professionals we work with a key differentiator in their offering investments to their clients. We have been through over two years of muted fundraising as compared to our expectations and to our efforts. We do believe it’s important to note that investors seem to be rotating back to commercial real estate as they perceive the opportunity to invest now to be well-timed.

As we have done in the past and plan to continue to do, I will turn to some of the material updates on assets we manage and the performance of our managed real estate funds. In the interest of your time each quarter, I will touch on what I believe is the most important changes that occurred during and subsequent to the quarter’s end, but will not attempt to comprehensively discuss every movement in every fund. I believe these updates are critical to our shareholders. Even though as a shareholder of Caliber, you are not an owner in a specific fund or asset, other than to the extent that Caliber has the cash invested in those assets, you are an owner in the fees that those assets generate and the potential profit of the funds and the assets we manage.

Starting with Canyon, Caliber’s first distressed real estate acquisition since 2012, I’m happy to share that the project has recently received the Phoenix City Council’s unanimous approval to proceed with our plan to convert the 300,000 square foot office building to 392 units of multifamily residential. Investors in Canyon also benefit from Opportunity Zone tax incentives, and Caliber will now be raising the project’s next round of equity to commence construction in 2025. On SP10, the conversion of a hotel into multifamily development, we had paused construction after receiving our building permits in favor of refinancing our construction debt. We are reviewing several new construction loans that offer more favorable terms than the existing debt and that allow us to move to a single-phase project instead of a three-phase project.

We expect to finalize this soon and restart construction. Moving to Caliber’s PURE Pickleball & Padel project in Riverwalk in Scottsdale, Arizona, we are happy to report the project has gained design review board approval from the Salt River Pima-Maricopa Indian Community Planning Department. This approval positions the project to seek a building permit once final construction documents are complete, with a plan groundbreaking shortly after we receive the permit. As a reminder, the project entails building a state-of-the-art pickleball and padel facility, including 50 courts, with some available for daily open play, as well as large tournaments, a clubhouse, a fitness center sponsored by HonorHealth, pro shop, teen room, office space, restaurant, cafe, and locker rooms.

Caliber’s Opportunity Zone funds are an investor in both the real estate and the operating business of PURE Pickleball. Speaking of Opportunity Zone investing, we recently closed on the refinance of the DoubleTree by Hilton Hotel in Tucson, Arizona at the Convention Center. This financing on an award-winning asset that Caliber had developed offers Caliber’s first Opportunity Zone Fund attractive terms and cash to reinvest in other assets within its portfolio. It was also Caliber’s first transaction with the team at Citibank, and we hope to continue to build the relationship with future financing opportunities. Moving on to the Caliber Hospitality Development, or CHD, Caliber announced that CHD had entered into a development rights agreement with an affiliate of Hyatt Hotels Corporation to exclusively develop 15 new Hyatt Studios hotels in target market areas within Arizona, Colorado, Nevada, Texas and Louisiana, an estimated $400 million in projects.

This agreement is the result of over a year of work together and marks a major milestone in Caliber’s growth as a hotel investor and developer. CHD, a new joint venture for Caliber, brought in $2 million in new operating capital to bolster Caliber’s ability to pursue distressed hotel acquisitions, along with a narrow lane of new development in Hyatt Studios. This capital, along with commitments from Caliber’s funds and investors, will be utilized to aggressively pursue opportunities through the second half of 2025. Turning to the Caliber Hospitality Trust, or CHT, which is Caliber’s strategy to acquire performing cash flow positive hotel assets, we disclosed last quarter that the previously expected LTD hotel contributions did not move forward due to the declining performance at those properties.

While this has caused a shift in our AUM trajectory for CHT, we’ve already onboarded three new contributor groups into the CHT pipeline and continue to see strong interest from operators seeking to roll assets into a tax-deferred UPREIT structure. We are still assessing the precise impact of this transaction not closing on our AUM target of $3 billion by the end of 2026, but we believe the actions taken by Caliber to streamline costs will help keep us on track to our profitability goals this year. Finally, Caliber is making progress in closing prior funds and seeking liquidity for its investors in those funds. We recently listed for sale our two Alaska fishing properties, hoping to execute a sale through the summer season. In addition, we expect to finalize the sale of our Eclipse Townhomes project soon.

Finally, we are making progress on our developments in Johnstown, Colorado, expecting another sale at the Ridge to close in the next month, and moving forward with many letters of intent and contracts for additional land sales in the five projects we manage there. I’ll now turn the call over to Jade, who will cover our platform financial results and provide more insights into Caliber’s business performance. Jade?

Jade Leung : Thank you, Chris. Good afternoon, everyone. As Chris just mentioned, we are continuing to increase the transparency in our financial reports with the goal of helping investors understand, analyze, and value Caliber’s performance. That includes transparency into the value of the assets we hold and managing our portfolio. To give investors a better understanding of Caliber’s assets, beginning in the last quarter 2024, we began reporting managed assets which includes both AUM, fair value AUM and assets under development, or AUD. AUD includes the value at estimated cost of development or improvement work we expect to complete on land we own or assets we own which are not yet improved. In addition, we also disclosed the value of the estimated performance allocations we expect to earn on total managed assets, which we had not previously reported.

For those of you who are not familiar, performance allocations, which may also be called carried interest or promote in our industry, is the portion of the profits of each project or fund we earn and expect to receive when we sell an asset or liquidate a fund. The anticipated performance allocations are forecasted in the detailed life cycle plans we develop for each asset prior to investing. These plans are updated every quarter and are rigorously tested and reviewed by external specialists and auditors each year. Because these performance allocations are all estimates, there is no guarantee that they will be achieved, and a material change to an asset plan will likely cause the amount of an expected performance allocation to change as well.

Investors should understand that many of the assets driving these performance allocations may be following a multi-year business plan or strategy, and the allocations are expected to be harvested over time. Adding in the value of our performance allocations, currently estimated to be $87.7 million, has the effect of increasing Caliber’s net worth or book value substantially and providing an important picture for investors to understand a component of Caliber’s value as a business. Moving on, I also want to highlight developments related to the company’s liquidity and going concern disclosures. Beginning in December 2023 and throughout 2024, we addressed how we were managing the cost structure of the business in light of our reoccurring losses.

We also disclosed the progress we were making with regards to our efforts to refinance one-year unsecured term loans that had various maturities throughout the following 12-month period without having a corresponding amount of cash on hand to meet those obligations as they became due. We have two primary programs available to help us manage these obligations. The first is refinancing existing notes into a 36-month unsecured note program. We have approximately $5 million of notes that have completed this refinance or are in the process of completing this refinance. We expect or we anticipate continued success in this program going forward as the investors in our corporate notes learn about the merits of the offering. The second is raising newly issued preferred stock.

We have two offerings, a Series A and a Series AA. The Series A is our private placement convertible preferred stock through which we can raise up to $15 million. The Series AA was approved on March 12, 2025 through Reg A+, to raise up to $20 million. Half of the proceeds from the Series AA are expected to be used to repay matured corporate notes. The other half will be used for general corporate purposes, including Caliber’s plans to grow. Our raise under each program has been gaining traction and we expect both programs to be successful. We have also backstopped our cash position by executing an equity purchase agreement for up to $25 million of common stock. We believe these measures are part of a holistic plan of strong corporate finance and they will help us manage satisfying our commitments as they come due.

We also expect these programs will offer Caliber the access to capital it needs to take advantage of the numerous revenue-generating opportunities Chris mentioned previously. Turning now to our results for the first quarter of 2025. Total Q1 platform revenue of $3.5 million was driven by asset management revenues. This was a 25% decrease compared to the prior period, primarily driven by a decrease in active development projects, which were eight in Q1 2024 and four in the current year quarter. The decrease is partially offset by a 7% increase in asset management and administrative fees earned from the contribution of Holiday Inn Newport News. Total platform expenses were $6.1 million in the first quarter of 2025, a decrease of 21% compared to Q1 of the prior year, primarily due to a decrease in operating costs related to payroll and payroll-related expenses.

Average employee headcount decreased by about 25% from Q1 2024 to Q1 of 2025 as part of our comprehensive cost-saving initiatives to return Caliber to profitability. These impacts on our performance translate to platform-adjusted EBITDA loss for the first quarter of $1.4 million compared to platform-adjusted EBITDA loss of $1.7 million during the same period a year ago. Managed capital was $495.2 million, a 9.1% increase compared to the year-ago quarter. And now turning to an update on our balance sheet, as of the end of Q1, we had 196 individual unsecured notes with an aggregate principal balance of approximately $33.2 million, of which $26.1 million have matured or will mature 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, we have moved forward with the steps I mentioned earlier to either refinance these notes on a longer-term basis or repay them. We continue to focus on collecting our outstanding accounts and notes receivable. Over the past year, we have collected over $9.7 million in investments and notes receivable, and our overall accounts receivable decreased by approximately $2 million. We’re excited to already start seeing the impact of these efforts and what their contribution can be to strengthen the platform’s performance throughout 2025. We continue to look for opportunities to refinance and recapitalize our balance sheet and are confident in our ability to achieve our goals.

We have noted an increase in lender activities following a slowdown that began in April 2023 and continued through the November 2024 election and hope to capitalize on a more normal environment going forward. I’ll now turn it back to the operator for your questions.

Operator: [Operator Instructions]. Your first question comes from the line of Brendan McCarthy of Sidoti & Company.

Brendan McCarthy: Just wanted to talk about the Hyatt deal. Can you go into detail on how that ultimately developed. Maybe kind of walk us through the near-term and long-term financial impact of that deal.

John Loeffler, II: The Hyatt deal is something that we’ve been working on actually for many years. Hyatt announced the Studios brand almost as a surprise at one of their owners’ conferences. In that announcement, Caliber was one of five developers nationwide identified as expected to be a preferred developer for this particular product. It’s been something we’ve been working closely with the Hyatt team on. At this point in time, I believe we one of the faster moving developers in the country, putting together sites and opportunities for this. And I guess probably I should start with what makes it attractive to us. Hotels today, there’s about the same amount of supply in hotels today as there was in January of 2020. And the shift in where people travel to, where populations are growing, where jobs are happening, has changed fundamentally in the last five years.

And so, the demand is the same or higher, supply is muted, and where people are traveling to has changed. So it really creates an interesting opportunity to build the right kind of hotel in the right kind of market. And that’s what Caliber is targeting to do. We looked across the ecosystem. Hyatt was one of the first brands to introduce this new extended stay model that’s much less costly to operate, requires less full-time employees, generates a better profit margin, and ultimately generates a nice outcome for our investors. And so, we kind of combined those two concepts. We worked with Hyatt for many years to put this together, and then the announcement is something that we quite proud of. As far as an impact on Caliber, $400 million worth of assets under management if we build these.

That’s probably based on cost. And each time we construct one of these assets, we’re looking at about $2 million worth of fees to the company, maybe a bit more, and then annual recurring fees from managing assets.

Brendan McCarthy: I wanted to pivot to fundraising, Chris. I know you mentioned it’s obviously been a challenging environment for two years or so. I know you mentioned the impact of the LTD termination and that has led you to kind of reassess some of those financial targets you talked about. Are you able to provide any kind of insight to, I guess, on those 2026 financial targets. I know the fundraising goal there had been $750 million. Just curious, I know a big part of that was for CHT, but really just curious as to how investors kind of think about those targets going forward.

John Loeffler, II: We’re still working through the timing of those targets because obviously the not closing on that transaction was not expected and not something we had planned for. What we see you know, as we look into our crystal ball, is that we are still going to achieve the goal we’re seeking to achieve with CHT. We’re just trying to determine based on the time it takes to find source and negotiate these types of larger contracts, whether that’ll all occur by the end of 2026 or whether we would be pushing that date out into 2027. So I think that’s the bogey we’re still analyzing. And I think it’s fair to say that we’re feeling better and more bullish about our prospects considering the fact that investors seem to be turning back to real estate as an opportunity and considering the fact that we are picking up new potential portfolio contributors in the CHT that we had not been talking to before.

So we feel good about those elements. I guess you would call them sort of green shoots of momentum, but we still need some more time to quantify that and really produce, I’d say, more concrete guidance on timing.

Brendan McCarthy: On the wholesale distribution channel front, it sounds like the first quarter of 2025 was pretty strong relative to 2024. What’s the progress like there? What are your expectations for wholesale heading into the last three quarters of the year?

John Loeffler, II: I feel really good about the channel. Driven by the fact that not only are we seeing an increase in selling agreements, but we’re seeing an increase in order flow coming from those selling agreements, like we mentioned, having the same order flow in the first quarter of 2025 that we saw in all of last year. That’s pretty impressive, and that’s really showing us that the selling agreements that we’ve been signing and the relationships we’ve been working on have been activated. Having said that, I think that the hardest part is that first selling agreement and that first order. So as we start to see more and more momentum, I do expect it to get easier to continue to build that momentum and to see that momentum start to accelerate.

The other thing I mention to you is what we have found in our conversations with these advisors is there a really strong fit between what they looking for which is what I would call an institutional quality investment management platform aligned to a more boutique and focused real estate investment strategy like Caliber offers. So there’s not a lot of companies like ourselves that are doing that and providing that type of a combination of that institutional quality investment management with the boutique nature of our investment platform. And as we talk to these advisors and as we start to onboard with them, we’re finding more and more are pleasantly surprised with what we have to offer.

Brendan McCarthy: One more question for me just on the assets under development and really on the refocus of your kind of business strategy here. As you kind of move forward and maybe monetize some of those non-core development projects, do you expect there to be a material impact on performance allocations?

John Loeffler, II: I think you can expect to see you know the typical fees of us generating from sales of brokerage fees and things like that. Because we’re making the decision to sell some of those assets and not continue to develop them, you probably will not see sizable performance allocations associated with those sales. But those estimates are already included in the $87.7 million of estimated performance allocations we provided. So if we’re expecting to sell something and not generate a performance allocation, that’s already included in that figure.

Brendan McCarthy: One last question just on the outlook for profitability. You mentioned the back half of this year is a little bit more favorable for profitability. I guess what factors can really drive maybe an outperformance or underperformance relative to your expectations?

John Loeffler, II: I would say an outperformance is going to be driven primarily by an improving financing environment and an improving fundraising. Both of those seem to be improving, but we hope that that momentum continues. And an underperformance would be sort of a continued, remaining, what do we have, seven months or six-and-a-half months of just lack of decision-making from investors in any one direction. That’s what we’ve experienced quite a bit of in the last two years, but we think that that is starting to change.

Operator: [Operator Instructions]. That’s all for our Q&A session and we appreciate your participation. I will now turn the call over to Ilya Grozovsky, Vice President of Investor Relations and Corporate Development. Please go ahead.

Ilya Grozovsky: Thank you for your time today. We look forward to speaking and meeting with many of you in the near future. If you have any additional questions, please visit our website at www.caliberco.com and follow the path for public shareholders. There, you can download our financial supplement and sign up on the mailing list specifically focused for public investors. If you have any questions, please complete the contact us form so we can get engaged with you directly. Thank you and have a good evening. You may now disconnect.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.