CWD: A Diversified Alternative Asset Manager Navigating Market Volatility

Published on September 24, 2024 | Ticker: CWD

CaliberCos Inc. (NASDAQ:CWD) is a leading diversified alternative asset management firm, managing over $2.9 billion in assets under management (AUM) and assets under development (AUD). The company's primary goal is to enhance the wealth of accredited investors seeking to make investments in middle-market assets. Caliber strives to build wealth for its clients by creating, managing, and servicing middle-market investment funds, private syndications, and direct investments.

Business Overview

Caliber's business model is built on a vertically integrated approach to investment management, offering a full suite of support services including transaction and advisory services such as development and construction management, acquisition and disposition expertise, and fund formation. The company earns various fees from providing these services under its asset management platform, including fund set-up fees, fund management fees, financing fees, real estate development revenues, and brokerage fees.

Financials

In the first quarter of 2024, Caliber reported total consolidated revenue of $23.0 million, a decrease of 22.3% compared to the same period in 2023. This decline was primarily due to a decrease in consolidated fund revenues, which was driven by the deconsolidation of Caliber Hospitality, LP and the Caliber Hospitality Trust, as well as a decrease in performance allocation revenue. For the full year 2023, Caliber reported annual revenue of $89.6 million.

The company's net loss attributable to CaliberCos Inc. for the first quarter of 2024 was $3.8 million, or $0.18 per diluted share, compared to a net loss of $1.2 million, or $0.07 per diluted share, in the same period of 2023. For the full year 2023, Caliber reported a net loss of $12.6 million.

Caliber's operating cash flow for the first quarter of 2024 was negative $1.5 million, compared to positive $1.1 million in the same period of 2023. The company's free cash flow for the first quarter of 2024 was negative $1.8 million, compared to negative $0.7 million in the same period of 2023. For the full year 2023, Caliber reported an annual operating cash flow of negative $18.7 million and an annual free cash flow of negative $18.5 million.

The company's total managed capital increased from $437.6 million as of December 31, 2023 to $453.9 million as of March 31, 2024. Managed capital is defined as the total capital Caliber has raised from investors in its funds and corporate note program. The company's fair value AUM increased from $741.2 million as of December 31, 2023 to $766.7 million as of March 31, 2024.

Caliber's asset management revenues, which include fund management fees, financing fees, development and construction fees, and brokerage fees, increased by 16.1% in the first quarter of 2024 compared to the same period in 2023. This increase was primarily driven by a rise in development and construction fees, which offset declines in financing fees and fund management fees. Performance allocation revenues, which are earned based on the performance of Caliber's investment funds, decreased from $2.4 million in the first quarter of 2023 to $0.2 million in the first quarter of 2024.

Cost Reduction Initiatives

The company's cost reduction initiatives, which include a reduction in force of approximately 10% of its employees and other cost-saving measures, are expected to result in annual savings of approximately $6 million. These actions are part of Caliber's efforts to return to profitability as soon as possible.

Liquidity

Caliber's balance sheet remains a focus, with the company facing challenges in managing its debt maturities. As of March 31, 2024, the company had $52.9 million in notes payable, net of deferred financing costs, on its consolidated balance sheet. The company's corporate notes, which make up the majority of this debt, have an average outstanding principal balance of $0.2 million, interest rates ranging from 8.25% to 12.00%, and maturity dates ranging from January 2024 to March 2025.

Outlook

Looking ahead, Caliber has outlined several key growth objectives for the next three years. The company expects to expand its fundraising activity, bringing in $750 million from 2024 through 2026, primarily through its private client and wholesale distribution platforms. Caliber also aims to grow its AUM to $3 billion, driven by expanding its product offerings and growing the Caliber Hospitality Trust. Finally, the company is committed to driving profitable growth, targeting $50 million in annualized total platform revenues by the end of 2026.

Conclusion

Caliber's diversified business model and focus on middle-market real estate investments have provided the company with resilience in challenging market conditions. However, the company faces risks related to its ability to raise capital, execute on its investment strategies, and manage its debt obligations. Investors should carefully consider these risks, as well as Caliber's financial performance and growth prospects, when evaluating the company as a potential investment.

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