Claros Mortgage Trust, Inc.

Ladies and gentlemen, thank you for your patience. This call is due to start in a couple minutes' time. © transcript Emily Beynon So, Welcome to the Claros Mortgage Trust third quarter 2022 earnings conference call. My name is Elliot and I'll be your conference facilitator today. All participants will be in a listen-only mode. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to hand over the call to Anne Hine, Vice President of Investor Relations for Claros Mortgage Trust. Please proceed.

Thank you. I'm joined by Richard Mack, Chief Executive Officer and Chairman of Claris Mortgage Trust, Mike McGillis, President and Director of Claris Mortgage Trust, and Jay Agarwal, CMTG's Chief Financial Officer. We also have Kevin Cullinan, Executive Vice President, who leads MREX Origination, and Priyanka Garg, Executive Vice President, who leads MREX Portfolio and Asset Management. Prior to this call, we distributed CMTG's earning 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 statement 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, such as distributable 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.

Good morning, and thank you everyone for joining us for our third quarter earnings call. It may be an understatement to note that market volatility and uncertainty continue to be the prevailing themes as investors and borrowers grapple with high inflation, rising interest rates, supply chain disruptions, geopolitical risk overseas, and political division and uncertainty at home. Economic data remains mixed and valuations widely distributed as investors across all asset classes assess the Fed's interest rate policy and debate its ability to engineer a soft landing. Despite these factors, we believe that the U.S. economy is stronger and more resilient compared to prior recessions, that it is the healthiest major economy in the world, and that the U.S. property sector will be more resilient than international markets. However, it is now our view that a recession is likely to occur sometime in 2023 as the Fed attempts to resolve the current inflationary environment. Looking ahead over the near term, we anticipate more pressure on real estate valuations, driven by higher interest rates and, in some cases, slower NOI growth. but the impact will be uneven and highly dependent on property type, asset quality, and market. On a positive note, it is important to recognize that there are opportunities for well-capitalized and well-positioned lenders that have demonstrated the ability to manage through challenging economic conditions, like CMTG. Our investment strategy is to focus on transitional lending opportunities secured by high-quality assets with institutional-grade sponsorship. we employ a disciplined approach to underwriting and portfolio construction and are just as focused, if not more so, on asset management. As a result, we believe that our portfolio is well positioned in today's evolving market environment. Our portfolio is comprised of nearly all floating rate loans and therefore has benefited from the current interest rate environment. All else remaining equal, Additional benchmark rate increases could translate into further earnings growth based on the current portfolio, and more than 90% of our floating rate loan portfolio have interest rate caps in place. With regard to asset allocation, we are heavily weighted towards multifamily, which accounts for more than 40% of our portfolio. We have relatively low office exposure and no standalone retail. Today, our portfolio is exclusively focused on U.S. investments, and we do not have any European exposure. For the last two years, we have been diversifying away from the coastal markets, capitalizing on the favorable demographic trends and underlying job and rent growth in select markets that we believe will prove to be more resilient in a scenario involving an economic downturn. To do this, we've leveraged the analysis and insights of the broader MAC Real Estate Group team, which has made recent equity investments in a number of these markets. Moreover, with an average portfolio LTV of 68% and low leverage on our balance sheet by design, we believe that we are well insulated against adjustments in real estate asset values. We have a conservative approach to managing our balance sheet. and have consistently employed relatively low leverage since our formation. In uncertain economic times, our view is that a conservative approach to leverage, adequate liquidity, and access to capital are critical. And we would like to note that we had more than 500 million of liquidity at the end of the third quarter. We believe that our business and strategically constructed portfolio will continue to be resilient despite the uncertain market landscape. Our senior management team has several decades of global real estate investing experience through multiple economic cycles. While each market cycle is unique, our team is recognizing both similar and new factors in the current environment that are informing our focus areas. During the third quarter, we continued to execute on our strategic priorities. Those strategic priorities include targeted originations, proactive asset management, and balance sheet management. Demonstrably, we took advantage of our liquidity position and the market dislocation to originate $878 million of new loans at strong historical spreads while focusing on our high-convection themes in the residential sector, high-growth markets, and in another drive-to hospitality loan. We're pleased to share our non-accrual loans represented less than 1% of the portfolio at the end of the quarter, down from 4% at the beginning of the year. Additionally, despite a challenging capital market environment, we continue to have access to financing. Notably, we entered into a $1 billion non-mark-to-market match-term financing facility with J.P. Morgan. Jay will provide additional color on this exciting closing. In summary, we believe our achievements for the quarter speaks to the strength of our management team, portfolio, and institutional relationships, in addition to our sponsors' integrated real estate lender, owner, operator, developer, and property manager business model. Looking ahead, we expect to selectively target our originations volume to seek to seize upon only those we see as the best risk-adjusted return opportunities while remaining defensive. Our pace of deployment will depend on where we see prudent and accretive leverage, as well as the pace of repayments from the existing portfolio, which could slow due to the overall softening transaction volume and the challenging refinancing climate. It bears repeating that we believe we are well positioned for what lies ahead. There will likely be volatility, uncertainty, and persistent dislocations. that come with economic disruptions. And we believe this environment will present many compelling CRE lending opportunities in the coming year, despite and due to the challenging capital markets. We believe CMTG has the scale, balance sheet, and team to pick and choose our investment opportunities and execute in today's environment. Now, before turning the call over to Mike, I'm pleased to share that our board of directors recently authorized the repurchase of $100 million of the company's common stock. We believe this decision reflects our conviction in our business strategy and long-term financial outlook in addition to our commitment to enhance shareholder value. I would now like to turn the call over to Mike.