CaliberCos Inc. 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from these forward-looking statements as a result of certain factors. For a complete discussion of such risk factors, see the section in this report entitled “Risk Factors”. Overview Over the past 15 years, Caliber has grown into a leading diversified alternative asset management firm, with more than $2.9 billion in assets under management (“AUM”) and assets under development (“AUD”). Caliber’s primary goal is to enhance the wealth of accredited investors seeking to make investments in middle-market assets. We strive to build wealth for our clients by creating, managing, and servicing middle-market investment funds, private syndications, and direct investments. Through our funds, we invest primarily in real estate, private equity, and debt facilities. We market and fundraise to direct channels and to wholesale channels. We believe that we provide investors attractive risk-adjusted returns by offering a balance of (i) structured offerings and ease of ownership, (ii) a pipeline of investment opportunities, primarily projects that range in value between $5.0 million and $50.0 million, and (iii) an integrated execution and processing platform. Our investment strategy leverages the local market intelligence and real-time data we gain from our operations to evaluate current investments, generate proprietary transaction flow, and implement various asset management strategies. An alternative asset manager, we offer a full suite of support services and employ a vertically integrated approach to investment management. Our asset management activities are complemented with transaction and advisory services including development and construction management, acquisition and disposition expertise, and fund formation, which we believe differentiate us from other asset management firms. We earn the following fees from providing these services under our asset management platform (the “Platform”): Asset Management Revenues • Organizational & Offering (“O&O”) fees include fund set-up fees and are a one-time fee earned during the initial formation, administration, and set-up of fund products we distribute and manage. These fees are recognized at the point in time when the performance under the contract is complete. • Fund management fees are generally based on 1.0% to 1.5% of the unreturned capital contributions in a particular fund and include reimbursement for costs incurred on behalf of the fund, including an allocation of certain overhead costs. These customer contracts require the Company to provide management services, representing a performance obligation that the Company satisfies over time. With respect to the Caliber Hospitality Trust (as defined in Note 3 – VIEs ), the Company earns a fund management fee of 0.7% of the Caliber Hospitality Trust’s enterprise value and is reimbursed for certain costs incurred on behalf of the Caliber Hospitality Trust. • Financing fees are earned for services the Company performs in securing third-party financing on behalf of our private equity real estate funds. These fees are recognized at the point in time when the performance under the contract is complete, which is essentially upon closing of a loan. In addition, the Company earns fees for guaranteeing certain loans, representing a performance obligation that the Company satisfies over time. • Real estate development revenues are generally based on two fee-based contracts, not to exceed 6%. The first, a real estate development contract that provides for up to 4.0% of the total expected costs of the development and is paid for services performed by Caliber Development, LLC as the principal developer of Caliber projects. These services may include obtaining new entitlements or zoning changes and managing and supervising third-party developers. The second, a construction management contract that provides for up to 4.0% of the total expected costs of the construction project for services provided managing general contractors with respect to the construction of the properties owned by the funds. Prior to the commencement of construction, development fee revenue is recognized at a point in time as the related performance obligations are satisfied and the customer obtains control of the promised service, including negotiation, due diligence, entitlements, planning, and design activities. During the construction period, construction management fee revenue is recognized over time as the performance obligations are satisfied. 33 Table of Con tents • Brokerage fees are earned at a point in time at fixed rates for services performed related to acquisitions, dispositions, leasing, and financing transactions. Performance Allocations • Performance allocations are an arrangement in which we are entitled to an allocation of investment returns, generated within the investment funds which we manage, based on a contractual formula. We typically receive 15.0% to 35.0% of all cash distributions from (i) the operating cash flow of each fund, after payment to the related fund investors of any accumulated and unpaid priority preferred returns and repayment of preferred capital contributions; and (ii) the cash flow resulting from the sale or refinance of any real estate assets held by each fund, after payment to the related fund investors of any accumulated and unpaid priority preferred returns and repayment of initial preferred capital contributions. Our funds’ preferred returns range from 6.0% to 12.0%, typically 6.0% for common equity or 10.0% to 12.0% for preferred equity, which does not participate in profits. Performance allocations are related to services which have been provided and are recognized when it is determined that they are no longer probable of significant reversal, which is generally satisfied when an underlying fund investment is realized or sold. Historically, the Company’s operations were organized into three reportable segments: fund management, development, and brokerage. During the year ended December 31, 2023, the Company reevaluated its reportable segments, considering (i) the evolution of the Company after closing its initial public offering and how the Company’s chief operating decision maker (“CODM”), the Company’s Chief Executive Officer, John C. Loeffler, assesses performance and allocates resources, (ii) changes to the budgeting process and in key personnel driven by the Company’s growth initiatives, and (iii) how management reports ongoing company performance to the Board of Directors. With the evolution and growth of the Company, the Company’s CODM assesses performance and resource allocation on an aggregate basis under the Company’s asset management Platform, and no longer reviews operating results for development or brokerage activity separately. As such, management concluded that the Company operates through one operating segment. The Company’s CODM assesses revenue, operating expenses and key operating statistics to evaluate performance and allocate resources on a basis that eliminates the impact of the consolidated investment funds (intercompany eliminations required by U.S. GAAP) and noncontrolling interests. Management concluded that the consolidated investment funds do not meet the requirements in ASC 280, Segment Reporting, of operating segments, as the Company’s CODM does not review the operating results of these investment funds for the purposes of allocating resources, assessing performance or determining whether additional investments or advances will be made to these funds. The investment funds are consolidated based on the requirement in ASC 810, Consolidation, as the Company was determined to be the primary beneficiary of each of these variable interest entities since it has the power to direct the activities of the entities and the right to absorb losses, generally in the form of guarantees of indebtedness that are significant to the individual investment funds. Caliber was originally founded as Caliber Companies, LLC, an Arizona limited liability company, organized under the laws of Arizona, and commenced operations in January 2009. In November 2014, the Company was reorganized as a Nevada corporation and in June 2018, we reincorporated in the state of Delaware. On our website we make available, free of charge, information about the Company and its’ investments. None of the information on our website is deemed to be part of this report. Trends Affecting Our Business Our business is driven by trends which affect the following: 1) Capital formation: any trend which increases or decreases investors’ knowledge of alternative investments, desire to acquire them, access to acquire them, and knowledge and appreciation of Caliber as a potential provider, will affect our ability to attract and raise new capital. Capital formation also drives investment acquisitions, which contribute to Caliber’s revenues. 2) Investment acquisition: any trend which increases or decreases the supply of middle-market real estate projects or loans, the accessibility of developments or development incentives, or enhances or detracts from Caliber’s ability to access those projects will affect our ability to generate revenue. Coincidentally, investment acquisitions, or the rights to acquire an investment, drive capital formation – creating a flywheel effect for Caliber. 3) Project execution: any trend which increases or decreases the costs of execution on a real estate project, including materials pricing, labor pricing, access to materials, delays due to governmental action, and the general labor market, will affect Caliber’s ability to generate revenues. 34 Table of Con tents Our business depends in large part on our ability to raise capital for our funds from investors. Since our inception, we have continued to successfully raise capital into our funds with our total capital raised through December 31, 2024 of $742.8 million. Our success at raising new capital into our funds is impacted by the extent to which new investors see alternative assets as a viable option for capital appreciation and/or income generation. Since our ability to raise new capital into our funds is dependent upon the availability and willingness of investors to direct their investment dollars into our products, our financial performance is sensitive in part to changes in overall economic conditions that affect investment behaviors. The demand from investors is dependent upon the type of asset, the type of return it will generate (current cash flow, long-term capital gains, or both) and the actual return earned by our fund investors relative to other comparable or substitute products. General economic factors and conditions, including the general interest rate environment and unemployment rates, may affect an investor’s ability and desire to invest in real estate. For example, a significant interest rate increase could cause a projected rate of return to be insufficient after considering other risk exposures. Additionally, if weakness in the economy emerges and actual or expected default rates increase, investors in our funds may delay or reduce their investments; however, we believe our approach to investing and the capabilities that Caliber manages throughout the deal cycle will continue to offer an attractive value proposition to investors. In June 2023, the United States of America’s House of Representatives unanimously approved legislation that would increase the number of investors who can participate in private offerings of securities by expanding the accredited investor criteria. The Fair Investment Opportunities for Professional Experts Act would expand the definition of accredited investor to include people with certain licenses, education or professional experience. The Accredited Investor Definition Review Act would give the SEC discretion to determine the certifications, designations or credentials investors must possess to be accredited and directs the SEC to review the accredited investor definition every five years. We believe these government actions will increase the size of our potential investor base significantly, however we cannot yet assess the number of newly accredited investors that would have the ability or interest to invest in a Caliber fund. While we have had historical successes, there can be no assurance that fundraising for our new and existing funds will experience similar success. If we were unable to raise such capital, we would be unable to deploy such capital into investments, which would materially reduce our revenues and cash flow and adversely affect our financial condition. We remain confident about our ability to find, identify, and source new investment opportunities that meet the requirements and return profile of our investment funds despite headwinds associated with increased asset valuations, competition and increased overall cost of credit. We continue to identify strategic acquisitions on off-market terms and anticipate that this trend will continue. We are at a point in our investment cycle where some of our funds have begun to exit significant parts of their portfolios while other are approaching a potential harvesting phase. We have complemented these cycles with other newer funds that will maintain management fees while providing continued sources of activity. Acquiring new assets includes being able to negotiate favorable loans on both a short and long-term basis. We strive to forecast and project our returns using assumptions about, among other things, the types of loans that we might expect the market to extend for a particular type of asset. This becomes more complex when the asset also requires construction financing. We may also need to refinance existing loans that are due to mature. Factors that affect these arrangements include the interest rate and economic environment, the estimated fair value of real property, and the profitability of the asset’s historical operations. These capital market conditions may affect the renewal or replacement of our credit agreements, some of which have maturity dates occurring within the next 12 months. Obtaining such financing is not guaranteed and is largely dependent on market conditions and other factors. The advancement of real estate investment-oriented technology, sometimes referred to as “proptech”, offers Caliber the benefit of new and innovative technologies to better execute on capital formation strategies, investment acquisition strategies, and investment management strategies. In recent years, Caliber has added to its technology stack with systems that we believe lead the market in their specific ability to enhance execution on our projects. Several of these technologies seek to incorporate investments in artificial intelligence, which we believe will be a prevailing trend in helping Caliber to enhance its project execution going forward. Regional conflicts and instability, such as those in Israel and Ukraine, can have significant impacts on global markets and economies and investor perception and tolerance for risk. These conflicts could lead to increased volatility in financial markets, disrupt supply chains, and change investor appetite for investments in alternative assets. Business Environment Global markets are experiencing significant volatility driven by concerns over inflation, elevated interest rates, slowing economic growth and geopolitical uncertainty. The annual inflation rate in the United States increased to 9.1% in June 2022, the 35 Table of Con tents highest rate since November 1981, but decreased to 2.9% in December 2024. As a result, from January 1, 2022 through September 18, 2024, the Federal Reserve increased the federal funds rate by 525 basis points. Subsequently, the Federal Reserve decreased the federal funds rate by 50 basis points in September 2024, by 25 basis points in November 2024 and by 25 basis points in December 2024, resulting in a target rate range of 4.25% to 4.50% at December 31, 2024. The rising interest rates, coupled with periods of significant equity and credit market volatility may potentially make it more difficult for us to find attractive opportunities for our funds to exit and realize value from their existing investments. Historically, inflation has tended to favor new capital formation for Caliber’s funds, as investors seek opportunities that can hedge against rising costs, such as real estate investments. In addition, the increase in interest rates has put pressure on owners of existing real estate to sell assets as their loans mature. Combined with a shrinking pool of buyers, the commercial and residential real estate markets in our favored geographies are moving away from a seller’s market and closer to a buyer’s market. It remains to be seen if a stressed or distressed market may emerge, similar to Caliber’s early years of operations. In both a buyer’s market and a stressed or distressed market, Caliber expects its business model to outperform, as our direct access to investor capital and our ability to invest in a variety of asset classes allows Caliber to move with the market and take advantage of potentially attractive prices. For project execution, inflation has increased the cost of nearly all building materials and labor types, increasing the cost of construction and renovation of our funds’ assets. Key Financial Measures and Indicators Our key financial measures are discussed in the following pages. Additional information regarding these key financial measures and our other significant accounting policies can be found in Note 2 – Summary of Significant Accounting Policies in the notes to our accompanying consolidated financial statements included herein. Total Revenue We generate the majority of our revenue in the form of asset management revenues and performance allocations. Included within our consolidated results are the related revenues of certain consolidated VIEs. Total Expenses Total expenses include operating costs, general and administrative, marketing and advertising and depreciation and amortization. Included within our consolidated results are the related expenses of consolidated VIEs. Other Income (Expenses) Other income (expenses) include interest expense and interest income. Results of Operations Comparison of the Consolidated Results of Operations for the Years Ended December 31, 2024 and 2023 Our consolidated results of operations are impacted by the timing of consolidation, deconsolidation, and operating performance of our consolidated and previously consolidated funds. Periods presented may not be comparable due to the consolidation or deconsolidation certain funds. In particular, the Company deconsolidated Caliber Hospitality, LP, the Caliber Hospitality Trust, and their consolidated subsidiaries, Elliot, DT Mesa, and Caliber Fixed Income Fund III, during the year ended 36 Table of Con tents December 31, 2024. The following table and discussion provide insight into our consolidated results of operations for the years ended December 31, 2024 and 2023 (in thousands): Years Ended December 31, 2024 2023 $ Change % Change Revenues Asset management revenues $ 16,879 $ 10,571 $ 6,308 59.7 % Performance allocations 358 3,639 (3,281) (90.2) % Consolidated funds – hospitality revenues 26,476 68,905 (42,429) (61.6) % Consolidated funds – other revenues 7,406 7,822 (416) (5.3) % Total revenues 51,119 90,937 (39,818) (43.8) % Expenses Operating costs 23,939 21,311 2,628 12.3 % General and administrative 6,776 6,770 6 0.1 % Marketing and advertising 751 1,052 (301) (28.6) % Depreciation and amortization 593 550 43 7.8 % Consolidated funds – hospitality expenses 26,503 80,669 (54,166) (67.1) % Consolidated funds – other expenses 5,870 9,162 (3,292) (35.9) % Total expenses 64,432 119,514 (55,082) (46.1) % Consolidated funds - gain on sale of real estate investments — 4,976 (4,976) (100.0) % Other (loss) income, net (3,093) 374 (3,467) (927.0) % Interest income 360 350 10 2.9 % Interest expense (5,424) (4,717) (707) 15.0 % Net loss before income taxes (21,470) (27,594) 6,124 (22.2) % Benefit from income taxes — — — 0.0 % Net loss (21,470) (27,594) 6,124 (22.2) % Net loss attributable to noncontrolling interests (1,693) (14,891) 13,198 (88.6) % Net loss attributable to CaliberCos Inc. $ (19,777) $ (12,703) $ (7,074) 55.7 % For the years ended December 31, 2024 and 2023, total revenues were $51.1 million and $90.9 million, respectively, representing a period-over-period decrease of 43.8%. This decrease was primarily due to a decrease in consolidated fund revenues as a result of the deconsolidation of Caliber Hospitality, LP and Caliber Hospitality Trust in March 2024. See the Segment Analysis section below in which revenues are presented on a basis that deconsolidates our consolidated funds. As a result, Platform segment revenues are different than those presented on a consolidated basis in accordance with U.S. GAAP, because these fees are eliminated in consolidation when they are derived from a consolidated fund. For the years ended December 31, 2024 and 2023, total expenses were $64.4 million and $119.5 million, respectively, representing a period-over-period decrease of 46.1%. The decrease was primarily due to a decrease in consolidated fund expenses which was primarily due to the deconsolidation of Caliber Hospitality, LP and Caliber Hospitality Trust in March 2024. For the year ended December 31, 2023, consolidated funds – gain on sale of real estate investments includes the $5.0 million gain recognized on the sale of Northsight Crossing, a commercial property with a cost basis of $21.7 million. There were no real estate sales during the year ended December 31, 2024. 37 Table of Con tents Comparison of the Platform (Unconsolidated) Results of Operations for the Years Ended December 31, 2024 and 2023 The following table and discussion provide insight into our unconsolidated results of operations of the Platform for the years ended December 31, 2024 and 2023 (in thousands). Years Ended December 31, 2024 2023 $ Change % Change Revenues Asset management revenues $ 20,563 $ 16,982 $ 3,581 21.1 % Performance allocations 379 3,656 (3,277) (89.6) % Total revenues 20,942 20,638 304 1.5 % Expenses Operating costs 24,904 21,808 $ 3,096 14.2 % General and administrative 6,817 6,807 10 0.1 % Marketing and advertising 751 1,053 (302) (28.7) % Depreciation and amortization 598 551 47 8.5 % Total expenses 33,070 30,219 2,851 9.4 % Other income (loss), net (2,654) 649 $ (3,303) (508.9) % Interest income 559 1,863 (1,304) (70.0) % Interest expense (5,424) (4,716) (708) 15.0 % Net (loss) income before income taxes (19,647) (11,785) (7,862) 66.7 % Provision for income taxes — — — 0.0 % Net (loss) income $ (19,647) $ (11,785) $ (7,862) 66.7 % For the years ended December 31, 2024 and 2023, total revenues were $20.9 million and $20.6 million, respectively, representing a period-over-period increase of 1.5%. The table below (in thousands) compares the revenues earned for providing services under the Company’s asset management Platform as described in the Revenue Recognition section of Note 2 – Summary of Significant Accounting Policies for the year ended December 31, 2024, to the revenues earned for the same period in 2023. Years Ended December 31, 2024 2023 $ Change % Change Fund management fees 12,318 10,120 2,198 21.7 % Financing fees 650 629 21 3.3 % Development and construction fees 6,751 4,984 1,767 35.5 % Brokerage fees 844 1,249 (405) (32.4) % Total asset management 20,563 16,982 3,581 21.1 % Performance allocations 379 3,656 (3,277) (89.6) % Total Platform revenue $ 20,942 $ 20,638 $ 304 1.5 % The increase in fund management fees is primarily due to an increase in capital raise fees and increase of managed capital and fees earned from the Caliber Hospitality Trust related to the acquisition of one hotel property. Fund management fees were based 38 Table of Con tents on 1.0% and 1.5% of the unreturned capital contributions in each fund and a fund management fee of 0.7% of the Caliber Hospitality Trust’s enterprise value. The decrease in performance allocations is due to the carried interest earned related to the contribution of the hospitality assets to Caliber Hospitality, LP in March 2023. For the years ended December 31, 2024 and 2023, total expenses were $33.1 million and $30.2 million, respectively, representing a period-over-period increase of 9.4%. The increase was primarily due to an increase in bad debt expense, partiallky offset by a decrease in operating costs related to payroll and payroll related expenses. Other loss, net was $2.7 million for the year ended December 31, 2024, as compared to $0.6 million for the year ended December 31, 2023. The decrease is primarily due to an increase in rental and reimbursement revenue from space leased at the Company’s corporate headquarters offset by a one-time impairment charge related to certain investments. For the years ended December 31, 2024 and 2023, interest expense was $5.4 million and $4.7 million, respectively. The increase was primarily due to an increase in short-term operating loans outstanding during the year ended December 31, 2024, as compared to the same period in 2023. Balance Sheets - Platform (Unconsolidated) The following table and discussion provide insight into our unconsolidated balance sheets of the asset management Platform for the years ended December 31, 2024 and 2023. Unconsolidated assets, liabilities and stockholders’ equity are presented on a basis that deconsolidates our consolidated funds (intercompany eliminations). Total assets, total liabilities, and total stockholders’ equity are different than those presented on a consolidated basis in accordance with U.S. GAAP, because certain accounts (including notes receivable, due from/to related parties, and investments in unconsolidated entities) are eliminated in consolidation when they are due from/to consolidated funds. Furthermore, we are required to add to this balance sheet, assets and 39 Table of Con tents liabilities and equity of the consolidated funds which are items that are not available to a shareholder of CWD. See the Non-GAAP Measures section below for reconciliations of the unconsolidated results to the most comparable U.S. GAAP measure. December 31, 2024 December 31, 2023 (in thousands) Assets Cash $ 1,766 $ 940 Restricted cash 2,582 2,569 Real estate investments, net (1) 21,782 21,571 Notes receivable - related parties 230 8,510 Due from related parties 11,143 15,424 Investments in unconsolidated entities 16,061 18,377 Operating lease - right of use assets 4,042 4,348 Prepaid and other assets (529) 2,972 Total assets $ 57,077 $ 74,711 Liabilities Notes payable, net $ 50,450 $ 53,799 Accounts payable and accrued expenses 9,580 8,886 Due to related parties 313 288 Operating lease liabilities 4,360 4,525 Other liabilities 818 557 Total liabilities 65,521 68,055 Stockholders’ (Deficit) Equity Common stock 23 22 Paid-in capital 41,530 36,966 Accumulated deficit (49,997) (30,332) Total stockholders’ (deficit) equity (8,444) 6,656 Total liabilities and stockholders’ (deficit) equity $ 57,077 $ 74,711 (1) Included in this balance is the Company’s corporate headquarters office building which had a $22.6 million fair value as of the year ended December 31, 2024. Investment Valuations The investments that are held by our funds are generally considered to be illiquid and have no readily ascertainable market value. We value these investments based on our estimate of their fair value as of the date of determination. We estimate the fair value of our fund’s investments based on several inputs built within forecasting models. The models generally rely on discounted cash flow analysis and other techniques and may include independently sourced market parameters. The material estimates and assumptions used in these models include the timing and expected amounts of cash flows, income and expenses for the property, the appropriateness of discount rates used, overall capitalization rate, and, in some cases, the ability to execute, estimated proceeds and timing of expected sales and financings. Most of our assets utilize the income approach to value the property. Where appropriate, management may obtain additional supporting evidence of values from methods generally utilized in the real estate investment industry, such as appraisal reports and broker price opinion reports. With respect to the underlying factors that led to the change in fair value in the current year, we identify assets that are undervalued and/or underperforming as part of our acquisition strategy. Such assets generally undergo some form of repositioning soon after our acquisition to help drive increased appreciation and operating performance. Once the repositioning is complete, we focus on increasing the asset’s net operating income, thereby further increasing the value of the asset. By making these below- 40 Table of Con tents market acquisitions, adding value through development activities, and increasing free cash flow with proper management all represent a material component to our core business model. A unique feature of Caliber’s funds is the discretion given to Caliber’s management team to decide when to sell assets and when to hold them. We believe this discretion allows Caliber to avoid selling properties that, while their business plan may have matured, the market will not pay an attractive price in the current environment. Avoiding selling at a time of disruption, such as all of 2020, is critical to preserving the value of our assets, our carried interest, our ongoing revenues, and our clients’ capital. While this is management’s expectation, there can be no assurance these outcomes will occur. Assets Under Management AUM refers to the assets we manage or sponsor. We monitor two types of information with regard to our AUM: i. Managed Capital – we define this as the total capital we fundraise from our customers as investments in our funds. It also includes fundraising into our corporate note program, the proceeds of which were used, in part, to invest in or loan to our funds. We use this information to monitor, among other things, the amount of ‘preferred return’ that would be paid at the time of a distribution and the potential to earn a performance fee over and above the preferred return at the time of the distribution. Our fund management fees are based on a percentage of managed capital or a percentage of assets under management, and monitoring the change and composition of managed capital provides relevant data points for Caliber management to further calculate and predict future earnings. ii. Fair Value (“FV”) AUM – we define this is as the aggregate fair value of the real estate assets we manage and from which we derive management fees, performance revenues and other fees and expense reimbursements. We estimate the value of these assets quarterly to help make sale and hold decisions and to evaluate whether an existing asset would benefit from refinancing or recapitalization. This also gives us insight into the value of our carried interest at any point in time. We also utilize FV AUM to predict the percentage of our portfolio which may need development services in a given year, fund management services (such as refinance), and brokerage services. As we control the decision to hire for these services, our service income is generally predictable based upon our current portfolio AUM and our expectations for AUM growth in the year forecasted. As of December 31, 2024, we had total FV AUM of approximately $794.9 million. Although we believe we are utilizing generally accepted methodologies for our calculation of Managed Capital and FV AUM, it may differ from our competitors, thereby making these metrics non-comparable to our competitors. Managed Capital The table below summarizes the activity of managed capital for the years ended December 31, 2024 and 2023 (in thousands): Managed Capital Balances as of December 31, 2022 $ 383,189 Originations 74,857 Return of capital (22,962) Other (1) 2,541 Balances as of December 31, 2023 437,625 Originations 68,959 Return of capital (14,042) Balances as of December 31, 2024 $ 492,542 ___________________________________________ (1) Other represents the inclusion of an investment of one of our funds upon the completion of an equity swap during the year ended December 31, 2023. 41 Table of Con tents The following table summarizes managed capital for our investment fund portfolios as of December 31, 2024 and 2023 (in thousands): December 31, 2024 December 31, 2023 Real Estate Hospitality $ 49,260 $ 43,660 Caliber Hospitality Trust (1) 97,414 70,747 Residential 96,687 74,224 Commercial 170,858 155,004 Total Real Estate (2) 414,219 343,635 Credit (3) 72,351 84,588 Other (4) 5,972 9,402 Total $ 492,542 $ 437,625 ___________________________________________ (1) The Company earns a fund management fee of 0.7% of the Caliber Hospitality Trust’s enterprise value and is reimbursed for certain costs incurred on behalf of the Caliber Hospitality Trust. (2) Beginning during the year ended December 31, 2023, the Company includes capital raised from investors in CaliberCos Inc. through corporate note issuances that was further invested in our funds in Managed Capital. As of December 31, 2024 and 2023, the Company had invested $20.4 million and $18.3 million, respectively, in our funds. (3) Credit managed capital represents loans made to Caliber’s investment funds by the Company and our diversified credit fund. As of December 31, 2024 and 2023, the Company had loaned $0.4 million and $8.5 million to our funds. (4) Other managed capital represents undeployed capital held in our diversified funds. Managed capital for our hospitality funds increased by $5.6 million during the year ended December 31, 2024, due to a $5.7 million related party note receivable bearing 12.0 % interest, issued to Caliber Hospitality Trust. Managed capital for the Caliber Hospitality trust increased by $26.7 million during the year ended December 31, 2024, primarily due to the issuance of $9.6 million of Caliber Hospitality, LP operating partnership units in exchange for the contribution of a hotel from L.T.D. on March 7, 2024 and $17.1 million of investments in Caliber Hospitality Trusts’ non-voting preferred stock. Managed capital for our residential investment funds increased by $22.5 million during the year ended December 31, 2024: representing (i) $9.6 million in capital raised into our residential assets offset by $8.3 million of capital returns, and (ii) $21.2 million contributed by our diversified funds. Managed capital for our commercial investment funds increased by $15.9 million during the year ended December 31, 2024, representing: (i) $11.0 million in capital raised into our commercial assets offset by $3.2 million of capital returns, and (ii) $10.6 million contributed by our diversified funds offset by $2.5 million return of capital. The scope of investments included tenant improvements, land development, and acquiring existing operating commercial properties. During the year ended December 31, 2024, our diversified funds deployed $12.9 million into our various real estate investments, which was offset by $25.2 million of repayments of outstanding notes receivable. As of December 31, 2024, other managed capital decreased $3.4 million, due to a decrease in funds not yet deployed and pursuit costs. 42 Table of Con tents FV AUM Our fair value AUM decreased primarily due to asset sales, partially offset by asset purchases. T he table below details the activities that had an impact on our FV AUM, during the years ended December 31, 2024 and 2023 (in thousands). Balances as of December 31, 2022 $ 745,514 Assets acquired (1) 29,384 Construction and net market appreciation 9,129 Assets sold or disposed (2) (52,710) Credit (3) 9,822 Other (4) 51 Balances as of December 31, 2023 741,190 CHT contribution 29,900 Assets acquired (1) 34,590 Construction and net market appreciation 40,675 Assets sold or disposed (2) (35,765) Credit (3) (12,237) Other (4) (3,430) Balances as of December 31, 2024 $ 794,923 The following table summarizes FV AUM of our investment fund portfolios as of December 31, 2024 and 2023 (in thousands): December 31, 2024 December 31, 2023 Real Estate Hospitality $ 68,500 $ 67,200 Caliber Hospitality Trust 236,800 201,600 Residential 161,700 138,000 Commercial 249,600 240,400 Total Real Estate 716,600 647,200 Credit (3) 72,351 84,588 Other (4) 5,972 9,402 Total $ 794,923 $ 741,190 ___________________________________________ (1) Assets acquired during the year ended December 31, 2024 include West Ridge, a 133 acre mixed-use land development in Colorado and Canyon, an office building conversion to multi-family residential. Assets acquired during the year ended December 31, 2023 include one development asset in Colorado, our headquarters office building, and two multi-family residential assets in Arizona. (2) Assets sold during the year ended December 31, 2024 include a commercial asset, lot sales related to two development assets in Colorado, and one home from our residential fund. Assets sold during the year ended December 31, 2023 include lot sales related to a development asset in Colorado, one development asset in Colorado, nine homes from our residential fund, and one commercial asset in Arizona. (3) Credit FV AUM represents loans made to Caliber’s investment funds by our diversified credit fund. (4) Other FV AUM represents undeployed capital held in our diversified funds. 43 Table of Con tents Non-GAAP Measures We use non-GAAP financial measures to evaluate operating performance, identify trends, formulate financial projections, make strategic decisions, and for other discretionary purposes. We believe that these measures enhance the understanding of ongoing operations and comparability of current results to prior periods and may be useful for investors to analyze our financial performance because they provides investors a view of the performance attributable to CaliberCos Inc . When analyzing our operating performance, investors should use these measures in addition to, and not as an alternative for, their most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. Our presentation of non-GAAP measures may not be comparable to similarly identified measures of other companies because not all companies use the same calculations. These measures may also differ from the amounts calculated under similarly titled definitions in our debt instruments, which amounts are further adjusted to reflect certain other cash and non-cash charges and are used by us to determine compliance with financial covenants therein and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments. Asset Management Platform or Platform Platform refers to the performance of the Caliber asset management platform segment, which generates revenues and expenses from managing our investment portfolio, which does not include any consolidated assets or funds. These activities include asset management, transaction services, and performance allocations. Management believes that this is an important view of the Company because it communicates performance of the Company that would be most useful for understanding the value of CWD. Fee-Related Earnings and Related Components Fee-Related Earnings is a supplemental non-GAAP performance measure used to assess our ability to generate profits from fee-based revenues, focusing on whether our core revenue streams, are sufficient to cover our core operating expenses. Fee-Related Earnings represents the Company’s net income (loss) before income taxes adjusted to exclude depreciation and amortization, stock-based compensation, interest expense and extraordinary or non-recurring revenue and expenses, including performance allocation revenue and gain (loss) on extinguishment of debt, public registration direct costs related to aborted or delayed offerings and our Reg A+ offering, the share repurchase costs related to the Company’s Buyback Program, litigation settlements, and expenses recorded to earnings relating to investment deals which were abandoned or closed. Fee-Related Earnings is presented on a basis that deconsolidates our consolidated funds (intercompany eliminations) and eliminates noncontrolling interest. Eliminating the impact of consolidated funds and noncontrolling interest provides investors a view of the performance attributable to CaliberCos Inc. and is consistent with performance models and analysis used by management. Distributable Earnings Distributable Earnings is a supplemental non-GAAP performance measure equal to Fee-Related Earnings plus performance allocation revenue and less interest expenses and provision for income taxes. We believe that Distributable Earnings can be useful as a supplemental performance measure to our GAAP results assessing the amount of earnings available for distribution. P latform Earnings Platform Earnings represents the performance of the Caliber asset management platform segment, which generates revenues and expenses from managing our investment portfolio, excluding any consolidated assets or funds. Platform Earnings per Share Platform Earnings per Share is calculated as Platform Earnings divided by weighted average CWD common shares outstanding. Platform Adjusted EBITDA Platform Adjusted EBITDA represents the Company’s Distributable Earnings adjusted for interest expense, the share repurchase costs related to the Company’s Buyback Program, other income (expense), and provision for income taxes on a basis that deconsolidates our consolidated funds (intercompany eliminations), and eliminates noncontrolling interest. Eliminating the impact of consolidated funds and noncontrolling interest provides investors a view of the performance attributable to the Platform and is consistent with performance models and analysis used by management. 44 Table of Con tents Consolidated Adjusted EBITDA Consolidated Adjusted EBITDA represents the Company’s and the consolidated funds’ earnings before net interest expense, income taxes, depreciation and amortization, further adjusted to exclude stock-based compensation, transaction fees, expenses and other public registration direct costs related to aborted or delayed offerings and our Reg A+ offering, the share repurchase costs related to the Company’s Buyback Program, litigation settlements, expenses recorded to earnings relating to investment deals which were abandoned or closed, any other non-cash expenses or losses, as further adjusted for extraordinary or non-recurring items. Platform Basic and Diluted Earnings Per Share (“EPS”) Platform Basic and Diluted EPS represents earnings per share generated by the Platform, without reflecting the impact of consolidation. Eliminating the impact of consolidated funds and noncontrolling interest provides investors a view of the performance attributable to the Platform and is consistent with performance models and analysis used by management. The following table presents a reconciliation of net loss attributable to CaliberCos Inc. to Fee-Related Earnings, Distributable Earnings, Platform Adjusted EBITDA, and Consolidated Adjusted EBITDA for the years ended December 31, 2024 and 2023 (in thousands): Years Ended December 31, 2024 2023 Net loss attributable to CaliberCos Inc. $ (19,777) $ (12,703) Net loss attributable to noncontrolling interests (1,693) (14,891) Net loss (21,470) (27,594) Provision for income taxes — — Net loss before income taxes (21,470) (27,594) Depreciation and amortization 598 551 Consolidated funds’ impact on fee-related earnings 1,185 14,020 Stock-based compensation 2,378 3,726 Severance 244 19 Performance allocations (358) (3,639) Other income, net (1,211) (374) Notes receivable impairment 4,304 — Bad debt expense 4,079 — Interest expense, net 4,865 4,367 Fee-Related Earnings (5,386) (8,924) Performance allocations 358 3,639 Interest expense, net (4,865) (4,367) Provision for income taxes — — Distributable Earnings (9,893) (9,652) Interest expense 5,424 4,717 Share buy-back — 183 Other income, net 1,211 374 Provision for income taxes — — Loss on CRAF Investment — 1,339 Consolidated funds’ impact on Caliber Adjusted EBITDA 548 1,788 Platform Adjusted EBITDA Loss (2,710) (1,251) Consolidated funds' EBITDA Adjustments 9,694 11,419 Consolidated Adjusted EBITDA $ 6,984 $ 10,168 The following tables present a reconciliation of Platform revenues, expenses and net income to the most comparable GAAP measure for the years ended December 31, 2024 and 2023 (in thousands): 45 Table of Con tents Year Ended December 31, 2024 Platform Impact of Consolidated Funds Consolidated Revenues Asset management $ 20,563 $ (3,684) $ 16,879 Performance allocations 379 (21) 358 Consolidated funds – hospitality revenue — 26,476 26,476 Consolidated funds – other revenue — 7,406 7,406 Total revenues 20,942 30,177 51,119 Expenses Operating costs 7,136 (964) 6,172 Payroll and payroll related costs 17,768 (1) 17,767 General and administrative 6,817 (41) 6,776 Marketing and advertising 751 — 751 Depreciation and amortization 598 (5) 593 Consolidated funds – hospitality expenses — 26,503 26,503 Consolidated funds – other expenses — 5,870 5,870 Total expenses 33,070 31,362 64,432 Other income (loss), net (2,654) (439) (3,093) Interest income 559 (199) 360 Interest expense (5,424) — (5,424) Net loss before income taxes (19,647) (1,823) (21,470) Provision for income taxes — — — Net loss (19,647) (1,823) (21,470) Net loss attributable to noncontrolling interests — (1,693) (1,693) Net loss attributable to CaliberCos Inc. $ (19,647) $ (130) $ (19,777) 46 Table of Con tents Year Ended December 31, 2023 Platform Impact of Consolidated Funds Consolidated Revenues Asset management $ 16,982 $ (6,411) $ 10,571 Performance allocations 3,656 (17) 3,639 Consolidated funds – hospitality revenue — 68,905 68,905 Consolidated funds – other revenue — 7,822 7,822 Total revenues 20,638 70,299 90,937 Expenses Operating costs 2,387 (497) 1,890 Payroll and payroll related costs 19,421 — 19,421 General and administrative 6,807 (37) 6,770 Marketing and advertising 1,053 (1) 1,052 Depreciation and amortization 551 (1) 550 Consolidated funds – hospitality expenses — 80,669 80,669 Consolidated funds – other expenses — 9,162 9,162 Total expenses 30,219 89,295 119,514 Consolidated funds – gain on sale of real estate investments — 4,976 4,976 Other income, net 649 (275) 374 Interest income 1,863 (1,513) 350 Interest expense (4,716) (1) (4,717) Net loss before income taxes (11,785) (15,809) (27,594) Provision for income taxes — — — Net loss (11,785) (15,809) (27,594) Net loss attributable to noncontrolling interests — (14,891) (14,891) Net loss attributable to CaliberCos Inc. $ (11,785) $ (918) $ (12,703) Liquidity and Capital Resources The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. At December 31, 2024, the Company had a portfolio of corporate notes, whose composition and characteristics are similar to those reported in prior periods. At December 31, 2024, the portfolio consisted of 202 unsecured notes with an aggregate principal balance of $32.8 million. As of March 31, 2025, $26.6 million of the corporate notes have matured or will mature within the 12-month period subsequent to March 31, 2025. Each note generally has a 12-month period with an option to extend for an additional 12-months. Because the Company incurred operating losses and negative cash flow from operations and could experience additional future operating losses and negative cash flow in the near term, combined with the fact that the Company does not have sufficient cash on hand to satisfy the total of the notes that mature within the next 12 months, these conditions and events raise substantial doubt about the Company’s ability to continue as a going concern. In response to these conditions, management considered the impact of these near-term maturities on the Company. 47 Table of Con tents Management evaluated the impact a default of one or many of these notes might have on the Company. As these notes are unsecured, the terms in the agreements do not afford the note holder avenues of recourse in a default that could or would impact the Company adversely in the normal course of business, as the terms lack provisions for rights or claims against the Company’s assets, nor is there a scenario where a default could force liquidation of the Company. Management believes that even in the event of default of one or many of these notes, the Company would be able to negotiate a waiver of the default either through an extension of the maturity or principal repayment schedule. To satisfy the maturity of these corporate notes, the Company intends to raise $20 million of preferred stock series AA financing through its Reg A+ offering, which was qualified on March 12, 2024, and refinance existing 12-month term notes into a new 36-month term corporate note program. From the balance sheet date through March 31, 2025, the Company has successfully refinanced $2.7 million of 12-month term corporate notes into the 36-month term corporate note program. In addition to the financing actions noted, management continues to execute various plans implemented in the year to address operating losses and near-term maturities or demands for repayment of its notes. Consistent with reported actions taken in prior fiscal periods, management plans to continue to i) reduce operating costs, ii) collect all or part of its $7.7 million in receivables, iii) collect all or part of its $16.1 million in investments from its managed funds, iv) increase capital raise through continued expansion of fundraising channels, v) sell or accept investment into its corporate headquarters, vi) place debt on unencumbered assets, and/or vii) generate planned cash from operations. After consideration of the implemented and planned actions, management concluded these plans are not within the Company’s control and therefore cannot be deemed probable. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern. Corporate Debt As of December 31, 2024, we have issued and outstanding unsecured promissory notes of $32.8 million with an average outstanding principal balance of $0.2 million, a weighted average interest rate of 11.30%, and maturity dates ranging from April 2023 to December 2027. The purpose of this financing program is to provide us with flexible, short-term capital to be used to grow its assets under management and assist funds in a fast-moving acquisition or investment, as well as general corporate purposes. Additionally, the program provides customers of our funds access to a short-term lending opportunity. Management actively manages each relationship to determine if the respective customer would like to redeem upon maturity or extend for an additional period of time. Management has historically been successful at extending these note programs and, as a result, continues to expect similar outcomes. This outstanding debt resulted in $4.0 million of interest expense for each of the years ended December 31, 2024 and 2023. Cash Flows Analysis The section below discusses in more detail the Company’s primary sources and uses of cash and primary drivers of cash flows within the Company’s consolidated statements of cash flows (in thousands). Years Ended December 31, 2024 2023 $ Change Net cash provided by (used in): Operating activities $ 555 $ (18,720) $ 19,275 Investing activities (19,629) (5,364) (14,265) Financing activities 6,331 25,790 (19,459) Net change in cash and cash equivalents $ (12,743) $ 1,706 $ (14,449) 48 Table of Con tents The assets of our consolidated funds, on a gross basis, can be substantially larger than the assets of our core business and, accordingly could have a substantial effect on the accompanying statements of cash flows. The table below summarizes our consolidated statements of cash flow by activity attributable to the Company and to our consolidated funds (in thousands). Years Ended December 31, 2024 2023 $ Change Net cash used in the Company's operating activities $ (4,626) $ (7,153) $ 2,527 Net cash provided by (used in) the consolidated funds' operating activities 5,181 (11,567) 16,748 Net cash provided by (used in) the Company's operating activities 555 (18,720) 19,275 Net cash provided by (used in) the Company's investing activities 4,911 (3,487) 8,398 Net cash used in the consolidated funds' investing activities (24,540) (1,877) (22,663) Net cash used in the Company's investing activities (19,629) (5,364) (14,265) Net cash (used in) provided by the Company's financing activities (1,217) 24,706 (25,923) Net cash provided by the consolidated funds' financing activities 7,548 1,084 6,464 Net cash provided by the Company's financing activities 6,331 25,790 (19,459) Net change in cash and cash equivalents $ (12,743) $ 1,706 $ (14,449) Operating Activities Our net cash flows from operating activities are generally comprised of asset management revenues and performance allocations, less cash used for operating expenses, including interest paid on our debt obligations. Net cash flows used in operating activities of the Company during the year ended December 31, 2024 remained relatively consistent as compared to the same period in 2023. The increase in net cash flows provided by operating activities of the consolidated funds during the year ended December 31, 2024, as compared to the net cash flows used in operating activities during the same period in 2023, was primarily due to decreased interest payments related to the consolidated funds notes payable. Investing Activities The increase in net cash flows provided by investing activities of the Company for the year ended December 31, 2024, as compared to net cash flows used in investing activities of the Company the same period in 2023, primarily relates to payments received on related party notes receivable and a decrease in the acquisition of real estate assets. The increase in net cash flows used in investing activities of the consolidated funds is primarily due to a decrease sales proceeds from the sale of real estate assets and the net impact of the consolidation and deconsolidation of VIEs, offset by an increase in the payments received on related party notes receivable, a decrease in investments in real estate assets and a decrease in the acquisition of real estate assets. Financing Activities The increase in net cash flows used in financing activities of the Company for the year ended December 31, 2024, as compared to the net cash flows provided by in the same period in 2023, was primarily due to a decrease of $26.0 million of net proceeds on notes payable. The increase in net cash flows provided by financing activities of the consolidated funds is primarily due to a decrease in redemptions and distributions to noncontrolling interest holders of $13.2 million, offset by a decrease in contributions to noncontrolling interest holders of $9.5 million. Critical Accounting Policies and Estimates The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates are made and evaluated on an ongoing basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in adverse ways, and those estimates could be different under different assumptions or conditions. 49 Table of Con tents Accounting Policies and Estimates of the Company We believe the following critical accounting policies affect the Company’s more significant estimates and judgements used in the preparation of our consolidated financial statements. Revenue Recognition In accordance with the Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), management applies the five-step framework in determining the timing and amount of revenue to recognize. This framework requires an entity to: (i) identify the contract(s) with customers, (ii) identify the performance obligations within the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations within the contract, and (v) recognize revenue when or as the entity satisfies a performance obligation. Revenues from contracts with customers includes fixed fee arrangements with related party affiliates to provide certain associated activities which are ancillary to and generally add value to the assets we manage, such as set-up and fund formation services associated with marketing, soliciting, and selling member interests in the affiliated limited partnerships, brokerage services, construction and development management services, loan placement and guarantees. The recognition and measurement of revenue is based on the assessment of individual contract terms. For performance obligations satisfied at a point in time, there are no significant judgments made in evaluating when the customer obtains control of the promised service. For performance obligations satisfied over time, significant judgment is required to determine how to allocate transaction prices where multiple performance obligations are identified; when to recognize revenue based on appropriate measurement of the Company’s progress under the contract; and whether constraints on variable consideration should be applied due to uncertain future events. Transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Variable consideration is included in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based largely on an assessment of its anticipated performance and all information that is reasonably available to the Company. Revenues are recognized when control of the promised services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The following describes revenue recognition for the fees the Company earns from providing services under its asset management Platform: Fund set-up fees are a one-time fee for the initial formation, administration, and set-up of the private equity real estate fund. These fees are recognized at the point in time when the performance under the contract is complete and are included in asset management revenues in the accompanying consolidated statements of operations. Fund set-up fees replaced fund formation fees that are earned at a point in time at a fixed rate based on the amount of capital raised into certain managed funds. Fund management fees are generally based on 1.0% to 1.5% of the unreturned capital contributions in a particular fund and include reimbursement for costs incurred on behalf of the fund, including an allocation of certain overhead costs. These customer contracts require the Company to provide management services, representing a performance obligation that the Company satisfies over time. With respect to the Caliber Hospitality Trust (as defined in Note 3 – VIEs), the Company earns a fund management fee of 0.7% of the Caliber Hospitality Trust’s enterprise value and is reimbursed for certain costs incurred on behalf of the Caliber Hospitality Trust. These revenues are included in asset management revenues in the accompanying consolidated statements of operations. Financing fees are earned for services the Company performs in securing third-party financing on behalf of our private equity real estate funds. These fees are recognized at the point in time when the performance under the contract is complete, which is essentially upon closing of a loan. In addition, the Company earns fees for guaranteeing certain loans, representing a performance obligation that the Company satisfies over time. These revenues are included in asset management revenues in the accompanying consolidated statements of operations. Development and construction revenues from contracts with customers include fixed fee arrangements with related party affiliates to provide real estate development services as their principal developer, which include managing and supervising third-party developers and general contractors with respect to the development of the properties owned by the funds. Revenues are generally based on 4.0% of the total expected costs of the development or 4.0% of the total expected costs of the construction project. Prior to the commencement of construction, development fee revenue is recognized at a point in time as the related 50 Table of Con tents performance obligations are satisfied and the customer obtains control of the promised service, including negotiation, due diligence, entitlements, planning, and design activities. During the construction period, development fee revenue is recognized over time as the performance obligations are satisfied. These revenues are included in asset management revenues in the accompanying consolidated statements of operations. Brokerage fees are earned at a point in time at fixed rates for services performed related to acquisitions, dispositions, leasing, and financing transaction, and are included in asset management revenues in the accompanying consolidated statements of operations. Performance allocations are an arrangement in which we are entitled to an allocation of investment returns, generated within the investment funds which we manage, based on a contractual formula. We typically receive 15.0% to 35.0% of all cash distributions from (i) the operating cash flow of each fund, after payment to the related fund investors of any accumulated and unpaid priority preferred returns and repayment of preferred capital contributions; and (ii) the cash flow resulting from the sale or refinance of any real estate assets held by each fund, after payment to the related fund investors of any accumulated and unpaid priority preferred returns and repayment of initial preferred capital contributions. Our funds’ preferred returns range from 6.0% to 12.0%, typically 6.0% for common equity or 10.0% to 12.0% for preferred equity, which does not participate in profits. Performance allocations are related to services which have been provided and are recognized when it is determined that they are no longer probable of significant reversal, which is generally satisfied when an underlying fund investment is realized or sold. These revenues are included in performance allocations in the accompanying consolidated statements of operations. Income Taxes The Company accounts for income taxes under the asset and liability method in accordance with ASC 740, Accounting for Income Taxes . Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax basis of assets and liabilities and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured by applying enacted tax rates and laws and are released in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are provided against deferred tax assets when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. A valuation allowance is required to reduce the balance of a deferred tax asset if it is determined that it is more-likely-than-not that all or some portion of the deferred tax asset will not be realized due to the lack of sufficient taxable income or other limitation on the Company’s ability to utilize the loss carryforward. We recognize the impact of an income tax position, if that position is more-likely-than-not of being sustained on audit, based on the technical merits of the position. Related interest and penalties are classified as income taxes in the financial statements. Accounting Policies and Estimates of Consolidated Funds We believe the following critical accounting policies affect the consolidated funds’ more significant estimates and judgements used in the preparation of our consolidated financial statements. Consolidated Fund Revenues In accordance with ASC 606, our consolidated funds apply the five-step framework in determining the timing and amount of revenue to recognize. This framework requires an entity to: (i) identify the contract(s) with customers, (ii) identify the performance obligations within the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations within the contract, and (v) recognize revenue when or as the entity satisfies a performance obligation. Our consolidated funds’ revenues primarily consist of hospitality revenues, rental income and interest income. Consolidated funds – hospitality revenue Hospitality revenues are comprised of charges for room rentals, food and beverage sales, and other hotel operating activities. Revenues are recognized as earned, which is defined as the date upon which a guest occupies a room or utilizes the hotel’s services. Revenues are recorded net of sales tax. Our consolidated funds have performance obligations to provide accommodations and other ancillary services to hotel guests. As compensation for such goods and services, the consolidated funds are typically entitled to a fixed nightly fee for an agreed upon period and additional fixed fees for any ancillary services purchased. These fees are generally payable at the time the hotel 51 Table of Con tents guest checks out of the hotel. The consolidated funds generally satisfy the performance obligations over time and recognize the revenue from room sales and from other ancillary guest services on a daily basis, as the rooms are occupied, and the services have been rendered. For food and beverage, revenue is recognized upon transfer of promised products or services to customers in an amount that reflects the consideration the consolidated funds received in exchange for those services, which is generally when payment is tendered at the time of sale. The consolidated funds receive deposits for events and rooms. Such deposits are deferred and included in other liabilities on the accompanying consolidated balance sheets. The deposits are credited to consolidated funds – hospitality revenue when the specific event takes place. Consolidated funds – other revenue Consolidated funds – other revenue primarily consists of interest income of $5.9 million and $3.7 million for the years ended December 31, 2024 and 2023, respectively, which is generated by a consolidated fund’s lending activity. Interest income is recognized on the accrual basis of accounting in accordance with the lending agreements over the term of the respective loan agreement. In addition, consolidated funds - other revenue includes rental revenue of $1.4 million and $4.0 million for the years ended December 31, 2024 and 2023, respectively. Rental revenue includes the revenues generated primarily by the rental operations of the residential (multi-family and single-family) and commercial properties of our consolidated funds. Consolidated Fund Expenses Consolidated fund expenses consist primarily of costs, expenses and fees that are incurred by, or arise out of the operation and activities of or otherwise related to, our consolidated funds, including, without limitation, operating costs, depreciation and amortization, interest expense on debt held by our consolidated funds, gain on extinguishment of debt, gain on derivative instruments, insurance expenses, professional fees and other costs associated with administering and supporting those funds. Fair Value of Financial Instruments The fair value of financial instruments is disclosed in accordance with ASC 825, Financial Instruments . The fair value of our financial instruments is estimated using available market information and established valuation methodologies. The estimates of fair value are not necessarily indicative of the amounts the consolidated funds could realize on disposition of the financial instruments. The use of different market assumptions and/or valuation methodologies may have a material effect on the estimated fair value amounts.