CaliberCos Inc.

Ladies and gentlemen, welcome to Calibre's third quarter 2023 conference call. As a reminder, today's call is being recorded for replay purposes. I would now like to turn the call over to Tamara Gonzalez, investor relations for Calibre. Please go ahead.

Good afternoon, everyone. Welcome to Calibre's third quarter 2023 financial results conference call. With me today are Chris Woffler, Chief Executive Officer and Co-Founder, and Jay 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 risks and uncertainties. Words like believe, expect, and anticipate refer to our best estimates as of this call. There could 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'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?

Thank you, Tamara, and thank you, everyone, for joining us on the call today. This is our first call since going public in May of 2023, and we've taken time since then to build our investor relations program and raise Caliber's awareness among investors and analysts. We've enjoyed engaging with the community, and we really look forward to our ongoing conversation. Some of your listeners have known Caliber for many, many years, and many are new to the Caliber story. I'd like to take a few minutes to explain who we are, what we do, our business strategy, and our competitive advantage. Throughout the call, I will also define some of the specific terminology used in discussing our business so it's easier for you to follow Caliber. Starting with who we are, Caliber is an investor, developer, and manager of real estate. We currently have more than $2.9 billion of managed assets, and a 15-year track record built on a singular goal, to make money in all market conditions. Our business is designed to provide our customers with real estate investment opportunities and real estate projects, strategies, and geographies that they could not access working with traditional global institutions. Our customers invest in Calibre's funds, which are managed by Calibre as a real estate asset manager. Our shareholders enjoy growth, as Caliber increases fundraising from our customers into our funds and then invest that capital from our fund into real estate investments. Along the way, we generate various forms of fees from managing those funds and underlying investments successfully. There's a direct correlation that if Caliber's customers succeed, so do our shareholders. The company generated $84 million in total revenue and $24 million in segment revenue in 2022. We've delivered positive adjusted EBITDA for three of the last four years, spanning from 2019 to 2022, and we expect to grow profitably over the long term. Moving deeper into what we are and what we do, Caliber is a financial services company, specifically a real estate asset manager. We focus on investing in projects that are generally 5 to 50 million in total size, something that we define as middle market real estate investments. We believe real estate investing is cyclical and local, and because of that, we think of our business more as a speedboat, driving towards each opportunity that presents itself as the market evolves. The contrast to that would be a cargo ship, which rarely changes course while pursuing the exact same asset class or strategy. Furthermore, we are asset class agnostic, and we have experience investing in nearly all real estate asset classes. Our current focus includes multifamily, hospitality, office-to-residential conversions, retail, entertainment, and mixed-use development in qualified opportunity zones. Caliber invests in geographies where we have a competitive advantage. For most asset classes, we focus on investments in Arizona, Colorado, and Texas. For hospitality, we develop a national scope focusing on growth-oriented markets in the southeast and southwest. Caliber employs a variety of real estate investment strategies that we believe will enable us to make money in all market conditions. The first strategy is buying real estate at a discount to its replacement costs, often referred to as distressed investing. Second, involves building value on land through new development or changing the use of an asset, also called adaptive reuse, or completing transformative renovation of existing assets. All three of these activities are often referred to as opportunistic investing. Third, we build strategies designed to provide our customers with steady income from real estate, mainly through buying stabilized assets and something that we refer to as core plus investing. Finally, we create investments that allow our customers to lend their funds and generate fixed rates of return, a form of private credit investing. Caliber's business model is to identify opportunities in the real estate market, create investment strategies to capture those opportunities, fundraise into each strategy, and then manage those investments and strategies to their conclusion. We generate revenue through three primary fee categories. The first is asset management fees. The second, performance fees, also known as carried interest. And the third, transaction and advisory fees. Our fee growth is a function of our success in fundraising, our success in growing our assets and our management, and our success in managing the journey of each asset. When we discuss fundraising, we sometimes refer to that as the change or growth in our managed capital. To be clear, this fundraising is occurring in Calibre's fund, which are products managed on our platform. This is not fundraising into Calibre or CWD, the public company. This fundraising does not create dilution for our shareholders. Calibers funds are marketed through Calibers in-house fundraising team and external partners. Our channels for capital include direct sales to private high net worth investors and family offices, wholesale sales to investment advisors and licensed brokers, and co-investing strategies for institutions. Caliber's competitive advantage lies in our ability to provide our customers with an experience analogous to what they may have had with a large global institution, while executing their real estate investment strategy as flexible entrepreneurs with on-the-ground knowledge. To do this, Caliber built our own in-house asset services group, which provides many of the critical services necessary to acquire, transform, construct, and manage real estate investments. Revenues generated by this group ultimately lead to better returns for our customers. Our deep involvement in each project through these services enhances Caliber's ability to find the opportunity to market in the first place and to create shareholder value as we generate more revenue on a per dollar of AUM basis. Critically, these functions also allow us to invest in assets that are frequently overlooked by large asset managers. Middle market assets often require in-house services to generate profitable return, as hiring all third-party providers may not work at this scale. Our third quarter results reflect the investments we made in our strategic growth initiatives. We expect to gain value from our investments going forward in the form of revenue growth. We continue to execute on our strategy in a very dynamic marketplace that includes a challenging fundraising environment, a real estate investment market that has come under distress, global conflict, and looming potential U.S. or global recession. Marketplace disruption is not new to Caliber. As we enter our 15th year of operations, we have managed through a wide variety of marketing conditions. Our team has the proven experience, vision, and agility needed to move the market. The rise in interest rates started in 2022, and it was the steepest in modern history. We believe we are at or near the end of interest rate increases, which also marks the beginning of a new cycle in the real estate investment world. Time will tell what this cycle will mean. At Caliber, we believe we are entering a market where assets can be purchased at a discount to their replacement value, and projects will struggle to find funding. Turning to an overview of the quarter, in the first nine months of the year, total revenues for the third quarter of 2023 decreased 12.7% to $17 million due to lower transaction and advisory fees. This reflects the impact of a one-time fee we recorded in Q3 of 2022. AUM for the quarter increased 20% year-over-year to $822 million. and managed capital increased 18% year-over-year to $412 million, reflecting the success of our continued fundraising in Caliber's real estate investment fund. We reported a net loss in the third quarter of $3.4 million, or $0.16 per diluted share. This loss reflects an accumulation of expenses related to the significant investments we made throughout 2023 in the growth of our team, the launching of three new funds, the launching of the Caliber Hospitality Trust, or CHT, Dave will take you through our financials in greater detail in a few minutes. While the environment has impacted Caliber, our team doubled down on fundraising this year, which remained on track to meet or exceed our prior year's results. We are in a new real estate investment cycle, as I mentioned, which drove Caliber to complete a year-long process starting in 2022 and ending this year to restructure and launch three new real estate investment funds, to capture the potential discounted buying opportunities that we see now and expect to continue to see. The funds offer an opportunistic strategy, a core plus strategy, and a qualified opportunity zone strategy. Notably, Caliber's new funds offer Caliber customers the ability to capture new investments without significantly diluting their ownership with assets purchased at a higher cost basis prior to 2022. We are in conversations with developers in need of funding that will allow us to invest in projects that material discounts the cost. This includes projects in opportunity zone locations we are active in, such as Scottsdale, Arizona, and Bryan College Station in Texas. This is also true for owners of existing real estate assets and associated financial institutions. They now appear ready to sell at a discount. Throughout the first nine months of this year, we built a foundation for growth. Our strategy has been centered on building funds, fundraising channels, and raising capital to prepare for the new reality in the market. We are entrenched in the capital raising process right now and expect to be ready to capitalize on these opportunities as they come. Further to that goal, we entered the wholesale distribution channel with our partner Skyway Capital. We hired an internal team of sales professionals along the way. This allows us to reach a large and growing market of registered investment advisors and licensed security brokers nationwide. We continue to make great strides in building out Caliber Hospitality Trust, our externally advised private hospitality company. We recently received our first investment capital into CHT's preferred equity, and our plans for CHT remain on track. We expect CHT will more than double our AUM in the near term. Our team is an important driver of our success during the quarter. We invest in the strategic high quality hires across our business. And we are pleased to welcome Ignacio Martinez, who joined our team earlier this year as SVP of operations. Ignacio has made critical improvements to our operations, including enhancing our customer portal and interconnecting our data. We are also pleased to welcome Jonathan Pettit as SVP of investments. Jonathan is the former CEO of a successful single family office and bench strength to manage and grow our new and existing funds, such as the Caliber Tax Advantage Opportunity Zone Fund II and the Caliber Diversified Opportunistic Growth Fund. We continue to build a team of analysts and financial professionals that will enhance our ability to pursue a broader range of deal flow and special situation opportunities. We believe that making strategic investments, even when the market is challenging, positions us to capitalize on the opportunities this environment will produce, which will enable us to grow revenue and accelerate our path to profitability. Today, we announced our three-year financial target to assist investors in understanding our plans for financial performance and to provide better clarity on the returns and timing we expect in the investments we have made. Caliber has issued three specific financial targets. The first, a cumulative fundraising target of $750 million in total for the period between 2024 and 2026, so essentially the next two years. The second, an AUM target of $3 billion in AUM by year-end of 2026. And the third, a target of generating annualized segment revenue of $50 million per year by year-end of 2026. Now, I'll turn the call over to Jay for a detailed look at our third quarter results and some commentary around our financial targets.