Claros Mortgage Trust, Inc.

Welcome to the Claris Morgus Trust First Quarter 2025 Earnings Conference Call. My name is Becky and I'll be your conference facilitator today. All participants will be in a listen only mode. After the speakers remarks, there will be a question and answer period. To ask a question on today's call, please press style followed by one on your telephone keypad. If you would like to remove your question, please press style followed by two. I would now like to hand the call over to Arna Huynh, Vice President of Investor Relations for Claris Morgus Trust. Please proceed.

Thank you. I'm joined by Richard Mack, Chief Executive Officer and Chairman of Claris Morgus Trust, and Mike McGillis, President, Chief Financial Officer and Director of Claris Morgus Trust. We also have Priyanka Garg, Executive Vice President who leads Emrex 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 meeting 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 view 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 reconciliations of non-GAAP measures to their nearest GAAP equivalents, 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 first quarter earnings call. Reflecting on recent U.S. tariff and foreign policy volatility, there is now heightened uncertainty as to outcomes. It has rippled across the globe, and while it's still unclear what the long-term implications will be for the U.S. economy, the global economy, and commercial real estate broadly, we've been observing impacts on the real estate capital markets. We are seeing spreads wide and slightly, and some institutional participants pause before transacting. As assessing and ascribing value to risk has become exceptionally difficult and will likely remain so until tariff and other economic policies are settled. All of this, combined with the ongoing higher rate environment, means that there are continuing headwinds to the broader real estate recovery. Outstanding this difficult backdrop, I am pleased to report that CMTG has made progress towards achieving the goals we outlined on our last earnings call. Enhancing liquidity, reducing leverage, and optimizing the outcomes on our watch list loans. As of April 30th, we have fully realized five loans and have received $607 million in proceeds from repayments and resolutions. Through these transactions, we accomplished the following. First, we improved our liquidity position. Second, we continue to reduce leverage. Third, we resolved to watch list loans and reduce CMTG's land and office exposure, which are two property types that have experienced challenges in recent years and have been difficult to monetize. Finally, we reduced our hospitality exposure by an aggregate of $326 million, which we view as a positive sign, given the potentially increasing economic headwinds and recessionary fears. Further, we have made progress on our multifamily REO strategy described last quarter. During the first quarter, we closed on a $214 million facility that will allow us to finance these non-performing loans through the REO stage. We continue to believe our path to optimizing outcomes on these cash flowing assets on behalf of shareholders is to assume title and manage these assets through disposition, given our sponsors experience as an owner, operator, and developer. As we look to the remainder of the year and the strategic priorities we set out to accomplish, our work continues every day. We also recognize the economic and political climate and its potential impact on capital markets, investor sentiment, and our momentum in accomplishing these priorities. As we navigate this period of uncertainty and volatility, we will continue to consider various paths to loan resolutions. These may include divesting, extending, recapitalizing, or taking assets over as REO depending upon market conditions and our assessment of opportunity through our sponsor's lens as a value add owner and developer of real estate assets. I would now like to turn the call over to Mike, and I thank you all for joining us today.

Mike? Thank you, Richard. We are highly focused on enhancing liquidity, thoughtfully redeploying capital to more creative uses such as reducing higher cost leverage and reducing levels of watch list loans. In executing these priorities, we may consider strategies such as loan sales, discounted payoffs, and or foreclosures, among other actions, to achieve our objectives. Our financial results and portfolio activity reflect our progress in the execution of these strategies. For the first quarter of 2025, CMTG reported a gap net loss of 56 cents per share and distributable loss of 25 cents per share. Distributable earnings prior to realized losses were eight cents per share. Earnings from REO investments contributed a distributable loss of three cents per share, primarily due to the expected seasonality associated with the hotel portfolio. CMTG's held for investment loan portfolio decreased to 5.9 billion at March 31st compared to 6.1 billion at December 31st. The quarter over quarter decrease was primarily the result of the resolution that occurred during the quarter. During the first quarter, we completed the sale of $101 million senior loan collateralized by a hotel in San Diego, which was sold at par. The loan was classified as held for sale at December 31st, and as such, the transaction did not impact CMTG's first quarter held for investment portfolio UPB. We also executed on the discounted payoff of $183 million New York land loan at 90% of par. While the discounted payoff impacted our first quarter financial results, the transaction provided several benefits, including generating approximately $95 million of liquidity for CMTG. In addition, the discounted payoff reduced exposure to land in New York City and also mitigated capital markets risk associated with the repayment of this loan at maturity. This loan was ultimately exposed to the office sector and that the sponsor's business plan is a large scale roundup office development. Subsequent to quarter end three additional loans were repaid, which in aggregate comprise $314 million of UPB. First, we received a full repayment of a $225 million loan collateralized by a hotel located in Savannah, Georgia. Second, we executed a discounted payoff of an $88 million Houston office loan that was on the watch list, resulting in repayment proceeds equal to 72% of UPB. Most recently, we resolved another watch list loan, a small $886,000 loan that was the residual amount owed on $125 million loan that was largely repaid in 2020. Turning to portfolio credit, during the first quarter, we downgraded one loan, the Texas office loan just mentioned, to a five risk rating. As Richard mentioned, we recently closed on a $214 million facility that will enable us to finance non performing loans and hold the underlying collateral of these loans as our EO assets upon foreclosure. We view the closing of this facility as an essential and positive step forward in executing our REO strategy. We expect to execute the foreclosure and conversion to REO of at least two of the loans in this facility during the second quarter. Turning to liquidity, at March 31st, we reported $136 million in total liquidity, which includes cash and approved and undrawn credit capacity based on existing collateral. As Richard mentioned, we're entering a period of heightened uncertainty and market volatility that could impact the real estate capital markets and ultimately our timing and ability to execute in line with our expectations. We intend to remain pragmatic while proactive. I would now like to turn the call over to the operator.

Thank you. If you wish to ask a question, please press star followed by one on your telephone keypad now. If for any reason you want to remove your question from the key, please press star followed by two. When preparing to ask a question, please ensure your device is unmuted locally. Our first question comes from Doug Harte from UBS. The line is now open. Please go ahead.

Thanks. For the last two quarters, you've talked about your two large multifamily loans that you would expect to kind of near term payoff on. I was just hoping you could give us an update on that and kind of what your expectations of near term are for those payoffs.

Yeah. Hi, Doug. Good morning. Thanks for the question. It's Priyanka. We are, that is, that's still in process. We are still anticipating that being the outcome. You know, both of those have maturities July 31st and August 1st. So coming up and both are tracking well towards that. But I will say, just given the market volatility, particularly the the West Coast loan, loan number one on our loan list, we are potentially going to have to evaluate other options. But, but we're, you know, like Mike said, we're going to be pragmatic. It's a very uncertain environment and we'll evaluate as we get more information.

I think great. And then as you just think about, you know, if you could update us on your current thoughts around the term loan be and, you know, kind of your, your timeline and expectations on that.

Sure, Doug. Well, the term loan has a maturity in August of 2026. So it goes current in August of 2025. We are, you know, sort of evaluating a couple of options there that include both a amend and extend of the existing term loan be. We would expect to make a you know, meaningful principal pay down as part of that. The other option is evaluating various private credit solutions, which we think are becoming more attractive in the recent environment.

Great. Thank you, Mike. Thank you,

Prach. Thank you. Our next question comes from Rick Shane from JP Morgan. The line is now open. Please go ahead.

Hey guys, thanks for taking my questions this morning. Really just sort of a strategic question is we sit here today on, I guess it's May 8th. And we think about the path to resolution. Are you guys, do you think that the opportunities to maximize NPVs on resolution today have shifted more towards a longer, more managed process or are we still in a scenario where first loss is best loss and it's the way to optimize is just to move on as quickly. And with that question, the other part of it is, do you feel at this point that you have the liquidity and resources to, in each of those scenarios, optimize the outcome or do you feel like your options are more constrained because of the liquidity situation within the company?

Thanks, Rick. Thanks for the question. I'll start and I'll let Richard and Priyanka tag on as appropriate. I think each one of these opportunities, you've got to evaluate them on a case by case basis. So it's very much facts and circumstances driven at the loan and asset level. You know, that's number one. I think we have fairly good visibility into some additional realizations that should further improve our liquidity position over the course of the second quarter and allow us to execute on asset level strategies that we think are appropriate and maximize our recoverers.

Mike, I wasn't sure if anybody else was going to pipe in on that.

Yeah, no, I'll just pipe in. That was exactly what I was going to say.

So I'm

glad Mike hit

it. Great. I really appreciate it, guys. Thank you very much.

Thank you. Thank you. As a reminder, to ask a question, please press star followed by one on your telephone keypad. Our next question comes from Jade Romani from KBW. Your line is now open. Please go ahead.

Thank you very much. Can you please give an update as to where things stand with your repo counterparties? We did see the most recent AK with Wells Fargo reducing that facility's outstanding to 500 million. Just want to see, you know, what your repo lenders are looking for, what they're saying and Is the plan to really amortize down the repo balances as you receive proceeds from working out loans in the portfolio?

Thanks, Jade. I'll take this one. So yeah, we recently extended the Wells Fargo facility for another year with extension options out through 2028. We also recently extended the Goldman Sachs repo facility for another two years in the 2027. So, you know, each repo facility is a little different, but I would say that the repo counterparties have been very constructive, very collaborative as we as we work through the environment. The reduction in the facility size of the Wells facility is really just a function of Looking at what our real financing capacity needs are in the near term and sort of sizing that at a level that is reflective of What's appropriate in the current environment where we're not originating a lot of loans. We'll continue to evaluate capacity size and as we've done in the past, increase capacity or decrease capacity based on what we're seeing within our portfolio.

Okay, when you say private credit regarding term loan. I mean, I'm not sure what that means. It could mean any host of things. You envision, are you contemplating a facility that would look, you know, in all intensive purposes, like the current facility, but perhaps at a higher rate or are we looking at, you know, potentially a mix of You know that restructuring that would include, you know, various other things. And what do you think the all in blended cost would be

Too, too early to comment on that Jade. I think what we're seeing is those costs start to get closer together when you're talking about a unit tranche facility versus syndicated debt offering. I think in terms of what that might look like it would probably look like. A new term loan financing, but with probably greater Operational flexibility would be the expectation, but too early to comment on specifics.

Mike, let me just add that I think the private thanks Jade. Sorry, I think that the private market. Is showing as much opportunity and appetite right now for what were previously better secured securitized executions. And so I think there are actually quite a few different Roots to take on this.

Okay. High level. Are there any other questions in the queue. Okay, I could come back.

We don't have any Go ahead.

Okay, thanks very much. Yeah, I was wondering if you could give some summary statistics for the overall portfolio, just so we know where things stand. On occupancy debt yield, perhaps. And if you could just characterize the portfolio and buckets ranging from, you know, projects that are light transition to projects that are, you know, a complete

Repositioning Yeah, Jade. I'll take that. It's Priyanka. Thanks. I think we're obviously it's a transitional portfolio. So some of those metrics are are, you know, perhaps less relevant and also we have so many other tools that we use routinely in our toolbox where we're Have additional credit support in the event of a lower debt yield lower coverage. Right. So that's in the form of cash reserves hard cash management guarantees, etc. So You know, the first question is a little bit hard to answer just in a vacuum. In terms of how to bucket the the portfolio were obviously have a much more seasoned portfolio than was initially anticipated when we Had originated these loans right so repayments have been slower. So one way to think about that is our construction portfolio peaked at Over a third of the portfolio and now we're down to only 12% of the portfolio. And we view that as a as a good thing in the sense that it's much easier to manage liquidity on the go forward featured funding commitments which have come down significantly. That was, you know, About $2 billion, just a couple of years ago. And now we're down to, you know, just over $100 million of required equity over two year period. And Also that speaks to the fact that a lot of our construction assets are the easiest to you know best in class in their markets and easiest to refinance. So there's been some natural run off on that as well. So I think as we sit here today. The heavy transitional and the ground up construction has really waned. It's much more a lot of we have a lot of multifamily exposure. Which is cash flowing. We have a couple of assets that have just come out of construction and have their CFO just in the first quarter. So we think we're in portfolio composition is getting better. And I think it is important to point to some of the resolutions that we saw year to date. We took an office loan off the books. We took a land loan off the box. So all of that is improving and moving in the right direction.

Okay, and then just this would be helpful from a liquidity perspective. What's the sum total of REO you expect to take this year and what are the liquidity implications of that. It looks like you do expect to take 330 million of multifamily and then you mentioned the new facility that can fund REO. Not sure what the advance rate is on that. It's probably, you know, 55 to 60%. But if you could give a sense for, you know, total REO and liquidity implications. Yeah,

Priyanka, why don't you cover the total REO. I've got the liquidity implications.

Sure. Okay, I'll start off here. I think, Jay, that's a really good question. We're talking about that internally all the time. It is quite fluid, as you might imagine, because we do have Your current REO that we think we're going to monetize in the near term, our mixed use asset here in New York City, our Commercial condominium eyes, the different components and we are, we've gotten approvals to do all of that. It's in the process of being recorded and that will result in us selling A majority of the office floors to a third party, which will result in a liquidity event reduced REO exposure. So, so I use that as an example to say there's just going to be ins and outs and it's going to be very frequent. The multifamily assets you identified, those are the ones that we think are the near term additions into the portfolio. There might be more and we're not ready to say that we're done taking Assets REO, if we think that's the right thing to do, we're going to do it. Just as a data point on the those five REO assets that we've identified potential REO. Four of them we have, you know, have been in the best in the strategy for the better part of a year. As we've been, you know, getting our ducks in a row to do that. And on those assets. We've been working side by side with the borrower over a long period of time and effective gross income is up 18% from the trough and occupancy is up six percentage points from the trough so It just goes to show that we're going to, you know, when we're going to get involved, we're going to do it on assets where we think our broader platform can really bear the appropriate experience and and create real value. Mike, do you want to jump in on the liquidity point?

Sure, Jay, with respect to liquidity when we move these assets on to the new financing facility for NPL and REOs we We the advance rate that we currently have on those facilities is consistent with what will what we'll need when we foreclose on the assets. So there's going to be no liquidity outflow on that initial asset pool when we foreclose.

Okay, that's good to know. I guess this is a strategic question, but an idea just popped into my head. I've been covering the space since 2009. I'm very familiar with what I started And was wondering if you might contemplate given the development background that Mac has So, we're going to be splitting the company into a, you know, a company that holds real estate development assets. And really has capital that is long term patient not looking for a near term dividend and would allow, you know, the greatest flexibility and potential upside. And then separating that from a mortgage REIT that would be generating more, you know, regular way income and focused on the performing part of the portfolio. And that would be, you know, positioned to eventually take advantage of the current environment and grow and you could bring in, you know, partners to do this. So just curious your thoughts on that.

Jay, that's an excellent idea and certainly something that we've, we've, we've had to think about right now. We don't have any plans to do that. But it's something we have to consider as we look At the opportunity in front of us in terms of how much REO we might want to own and reposition. So we're going to continue to evaluate all strategies, including that. But right now we're, we're, we're trying to really Think about REO as a medium term opportunity to improve performance of the assets before liquidating them. But I think it is good to consider other ways to think about REO as we bring them on and we reposition them.

Thank you.

Thank you. We currently have no further questions. So I'll hand back to Richard for closing remarks.

Yeah, so thank you all again for joining. Let me just make some observations that maybe we're all feeling as, you know, volatility in Washington from a policy perspective seems to be abating. But at the moment, it's slowing down the recovery in real estate. Having said that, fundamentals are still strong at the property level and the REO assets that we are taking back, we're doing, I think, quite a good job. In improving performance. Otherwise, we wouldn't be bringing them on balance sheet if we didn't think we can do that. As stated In the last call, we've got 2 billion of realizations that we are seeking to create over the year. We've done 600 million so far and we've got a number of additional realizations in the queue to help improve our liquidity. That's going to be our key. Continue to do what it takes to manage the liquidity to de-lever and be ready for future liability maturities. And to get back on offense. So that's what we're doing. And hopefully the volatility will obey and allow the recovery in real estate that we've been experiencing over the last 6 months to a year to continue. So I thank you all for joining and I look forward to speaking to you again on the next earnings call.

This concludes the day's call. Thank you for joining us. You may now disconnect your lines.