Claros Mortgage Trust, Inc.

Hello and welcome to today's Clarish Mortgage Trust Incorporated fourth quarter 2021 earnings conference call. My name is Bailey and I will be the operator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to Arne Wynne, Vice President of Investor Relations.

Thank you. Good morning. I'm joined by Richard Mack, Chief Executive Officer and Chairman of Claris Mortgage Trust. Mike McGillis, President and Chief Financial Officer and Director of Claris Mortgage Trust. And Jay Agarwal, who will be CMTG's Chief Financial Officer, effective after the filing of Reform 10-K. We also have Kevin Cullinan, Executive Vice President, who leads MREX Origination and Priyanka Garg, Executive Vice President, who leads MREC portfolio and asset management. Prior to this call, we distributed CMPG's earnings supplement. We encourage you to reference these documents in conjunction with the information presented on today's call. If you have any questions following today's call, please contact me. I'd like to remind everyone that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our other filings with the SEC. Any forward-looking statements made on this call represents our views only as of today, and we undertake no obligation to update them. We will also be referring to certain non-GAAP financial measures on today's call, such as net distributed earnings. which we believe may be important to investors to assess our operating performance. For non-GAAP reconciliations, please refer to the earnings supplement. I would now like to turn the call over to Richard.

Thank you, Ann, and thank you, everyone, for joining us this morning. We are pleased to welcome you to our fourth quarter 2021 earnings call. I'm happy to say that we concluded the year with one of our strongest originations quarters, reporting $1.8 billion in total originations primarily composed of cash flowing, senior transitional, floating rate loans. As we continue to deploy capital during the quarter, we maintained our disciplined approach to investing. Moreover, the originations momentum we achieved during the fourth quarter has continued into 2022, and our pipeline remains very strong. Let me provide some more details on what was an opportunistic investment period for CMTG. At the end of the year, we observed a significant pullback in the securitization and CLO markets that resulted in some lenders being less active or temporarily exiting the market. The disruption presented an opportunity for us to deploy available capital, step in as an alternative financing source, and increase our multifamily and light transitional exposure while diversifying geographically. Total Q4 originations volume, $1.4 billion, or 80%, involved multifamily properties. And as a result, our multifamily capital allocation increased significantly to 30% of the portfolio at year-end 2021, from 17% at September 30th. In addition to increasing our multifamily allocation, we also enhanced our geographic diversification by originating loans in markets that have been exhibiting favorable demographic trends and job growth, such as Dallas, Nashville, and Las Vegas. Multifamily loans have been and will continue to be a strategic focus for us. Mac's experience in residential development, ownership, and property management provides us proprietary skills, market information, and a large network of industry relationships. This, in turn, gives us a competitive advantage in underwriting and managing these loans. A good example of this is the largest loan we originated during the quarter. a $405 million loan to refinance a newly constructed trophy multifamily asset in Santa Monica, California, where our West Coast development team is based. This loan was made to a repeat borrower and a well-respected institutional partner and is another illustration of the institutional nature of our borrowers, the strength of our relationships, and the quality of the underlying locations and collateral. Given recent disruption in the securitization market, the current macroeconomic environment, and industry dynamics, we anticipate an ongoing focus on originating loans in the residential sector. Multifamily tends to perform well during a rising rate environment, and there continues to be strong tailwinds supporting the residential asset classes. Recent housing demand has been outstripping low inventory levels, and rising costs as well as labor and material shortages are placing additional challenges on new supply. Therefore, we believe that the industry will continue to achieve strong rent growth and price appreciation. In addition to multifamily, we see favorable trends in the single-family for rent or SFR market, with demand driving rent growth. Subsequent to the fourth quarter, we originated several loans backed by portfolios of SFRs to take advantage of the opportunities we are seeing in this asset class. While we always try to be opportunistic and nimble, investing across all major classes, we expect residential investments to continue to be a meaningful component of our portfolio. Now, just a couple of comments about the geopolitical environment and interest rates. First, our thoughts are with the Ukrainian people. We admire their bravery and regret the suffering that is unfolding from the Russian invasion. The range of outcomes here is perhaps unprecedented. Our expectation is that the longer the siege and related economic sanctions last, the more likely it is that Europe and other parts of the world, including the U.S., could face the terrible forces of stagflation. However, right now, growth in the U.S. has been so robust that we currently discount stagflation here. Of course, we are keeping our eye on it. As discussed already, there is dislocation in the securitization market, and one could expect that transitional lending spreads will rise as a result of geopolitical and stagflation concerns, particularly in Europe. We will be monitoring this opportunistically. As it relates to our existing portfolio, we feel comfortable with our limited exposure to office and hotel and zero standalone retail. In addition, we have some select high yielding exposure to land and to construction, where we are comfortable with our last dollar basis and the underlying collateral. These are lending opportunities where the MAC platform's development and construction experience position us well to generate alpha, particularly in the multifamily development space. We view residential as inherently defensive, and our team's expertise enables us to evaluate risk in this asset class. As to interest rates, Invencim Europe are pushing up oil prices. compounding pre-existing commodity and supply chain issues and further escalating inflation concerns. At the same time, the Fed is transitioning away from an accommodative monetary policy to begin to combat inflation. If we assume a continued upward trajectory of 10-year Treasury rates to a normalized level with continued economic growth, this should be very positive for real estate. Inflation seems likely to continue to drive rents and expenses upward, translating into higher NOIs against higher, perhaps appropriately higher, but still historically modest interest rates. We see this as a very healthy economic backdrop for real estate assets. Further, we believe that CMTG is well positioned over the immediate term with a predominantly floating rate portfolio to be rewarded by rate rises in such an environment. Before turning the call over to Mike, I'm excited to welcome Jay Agarwal to the Mack Real Estate Group. He joined our firm recently and will soon step into his role as CMTG's Chief Financial Officer. Mike McGillis will continue to serve as the President of CMTG. I will now turn the call over to Jay to say a few words. Jay, welcome and to you.