Claros Mortgage Trust, Inc.

Ladies and gentlemen, please remain holding the conference will begin momentarily again. Please remain holding the conference will begin momentarily. Welcome to the Clara's Mortgage Trust second quarter 2024 earnings conference call. My name is Jaquita, and I will be your conference facilitator today. All participants are 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 1 on your telephone keypad. I would now like to hand the call over to Anwen, Vice President of Investor Relations for Clara's Mortgage Trust. Please proceed.

Thank you. I'm joined by Richard Mack, Chief Executive Officer and Chairman of Claris Mortgage Trust, and Mike McGillis, President, Chief Financial Officer, and Director of Claris Mortgage Trust. We also have Bianca Garg, Executive Vice President, who leads MREX Portfolio and Asset Management. Prior to this call, we distributed CMTG's earnings release and supplement. We encourage you to reference these documents in conjunction with the information presented on today's call. If you have any questions, 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 represent 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 distributable earnings, which we believe may be important to investors to assess our operating performance. For reconciliation of non-GAAP measures to their nearest GAAP equivalent, 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 for CMTG's second quarter earnings call. It's been more than two years since the Fed started raising interest rates in response to rising inflation, and it's not been an easy run for the commercial real estate industry to say the least. When we take a step back and look at the broader picture, we can see many variables at play. Property owners have not had the pricing power of other industries that were able to pass on rising costs to consumers. Falling demand for office space and additional supply coming online in multifamily and industrial have coincided with dramatic increases in real estate expenses and capital costs. This is translated into real estate values falling rapidly across the board. Commercial real estate takes time to build and time to stop building. so it lags the economy. And in the short term, the industry has been disproportionately hurt by inflation and rate movements. But it can also result in outsized benefits when this pattern reverses. New construction has been dramatically reduced against the backdrop that features a generally resilient consumer, cooling inflation, and a broad-based market expectation that the Fed is poised to begin cutting rates. Furthermore, Many investors are also predicting a resumption of rent increases in both multifamily and industrial, given limited new supply and sustained demand, just as rates may start to fall. This double benefit impact has some investors calling the bottom, especially since construction costs have also risen significantly. Not surprisingly, then, we are starting to see green shoots in the commercial real estate market. suggesting a more positive trajectory for the industry could be on the horizon. While it's still too early to declare a sea change in investor sentiment, large and noteworthy transactions are getting done. Lenders are slowly returning to the market as new sources of private credit emerge. With this gradual increase in liquidity, albeit still muted from recent historical levels, we've seen borrowers successfully and willingly secure financing even in light of the elevated rate environment. With regard to our portfolio, we continue to be constructive on the long-term outlook of the multifamily sector, which remains our largest portfolio concentration. We expect population growth, migration to many of our current and target MSAs, and limited housing supply will continue to drive the overall fundamental picture we are seeing in rental housing. Additionally, we have made meaningful progress towards improving value in our two REO assets, and we attribute this success to our management team's experience and hands-on asset management approach. Looking ahead, many in the real estate industry expect that rate relief will re-energize the real estate capital markets, providing valuation tailwinds for most asset classes. And while we remain focused on liquidity, we also believe that the optimism around the Fed reducing rates provides us a compelling opportunity to reevaluate how we are deploying and directing our capital in expectation of asset value increases. Although the number of assets on non-accrual and the watch list increased this quarter, the rate of increase decelerated, implying an improving cycle. In such an environment, we do not believe that the current portfolio designations reflect the inherent value of our portfolio over the medium to long term. With all of these factors in mind, our board of directors has decided to adjust our quarterly dividend to 10 cents per share beginning in the third quarter of 2024. We believe this decision enables us to pursue capital allocation strategies with the objective of preserving and enhancing book value, while also positioning the portfolio for earnings growth. Those capital allocation decisions may include investing in our current and potential future REO assets, paying down high cost debt, buying back our term loan, or buying back CMTG stock, which we believe is significantly undervalued at current price levels. I would now like to turn the call over to Mike.