CMTG - Earnings call 4 2023 | Claros Mortgage Trust, Inc.

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Operator

Hello, everyone, and welcome to Claros Mortgage Trust Fourth Quarter 2023 Earnings Conference Call. My name is Bruno, and I'll be your conference facilitator today. [Operator Instructions] I would now like to hand over the call to Anh Huynh, Vice President of Investor Relations for Claros Mortgage Trust. Please proceed.

Anh Huynh

Thank you. Mortgage Mack, and Officer Chief Mike and of Richard Claros Chairman Financial by: Director Trust; Mortgage McGillis, Claros joined Chief and Executive of Officer, I'm Trust. President and

the you the in CMTG's We also Originations; presented Priyanka supplement. earnings information to Portfolio release Executive Garg, this Vice conjunction MRECS encourage who President, leads Asset leads and and who call. Executive to Vice and today's have: documents MRECS President, call, with reference Cullinan, these Kevin Management. Prior on we We distributed

from If you of the our factors, contact statements forward-looking a of everyone call only those the have these including Reform in may filings any today's represent those of as forward-looking call, today, SEC. materially we XXXX. update include our Securities no Any Private questions forward-looking call that views indicated statements various this me. I'd important obligation other to please following of with by statements undertake may meaning results Act them. as remind and like on the Litigation within result made to Actual today's differ discussed

important earnings, We we on today's distributable financial will believe to measures performance. be such assess as may also non-GAAP call, our to referring certain to be operating investors which

For the to reconciliations Richard. equivalent, earnings of to GAAP non-GAAP the to measures over call to supplement. I refer like please their nearest turn would now

Richard Mack

easing a Call. the What strong numbers while for tempered enthusiastically commence in estate and And meaningful monetary marking market guide, labor the have Fed's Fed of very January Will declined ongoing the in anticipation resilience, commercial moderate CMBS Cutting lag it inflation a a Even property and layoffs morning, how that demonstrate bonds above commence reignite rate effect dampening progress target, most persistent the economy Will through year? XXXX any be the continues as signals be beat and early movements cuts. for growth? are the difference CRE for real hard reality CMTG's you is landing employment, and chains risks expectations, to soft cuts a bad surrounding there will policy imminent market GDP thank strong, rallied, news rate investors has optimism. rapid election inflation But U.S. Good Earnings inflation? makes? be on Quarter spreads with counting a joining XXXX. what significantly, the markets and still optimism and handicapping geopolitical of the least the it's estate. rapid in for can complexities noise, been Consequently, news but are inflation. disrupt bottom. to by real Will Or Fourth monetary and in if towards you're point year unless inherent as earnest? seemed in target. And that's business purchased good at us February supply

operators costs are volumes many unless of rates. negative Fed real for transaction up exception constrained and contending last capital been until have with with XX markets the With the muted rates, cap driven months. borrowing Higher have estate January, coupled the leverage and drops

need assumed difficult As decisions negative stance, a and Most will sentiment volatility to and in real much XXXX, see addressed. despite estate extreme real many postponing the estate with be result, not in happened investors headlines. wait market that a eventually and

asset of much of of well and the consensus become values. inevitable the inflection This believe or and with will as rationalizing along the for the market for available critical estate investors more In a certainly trades, to unfold cuts, differently. thereof, of deploy. expectation point the distressed we feeling the to real of some bode capital beginning weight will ahead, lack likely will XXXX that XXXX Looking availability XXXX, rate

best our slow this rate to now slowly materialize. cuts horizon, the guess that but XXXX, happens remaining in is on with However,

industry will the to of evidence from That on to become fundamentals refinancings and values is for more to a more we not, a take do XXXX anticipate said, need capital of until timing, or they of fully more seeing right to exact the level spreads volumes until there likely seems embrace the conclusive to price that CRE cuts discovery in is XXXX. we consensus constrained, will where and visibility likely transaction result, bid/ask will a cuts escalate end and rate now, be Fed recapitalizations. and it unlikely system be XXXX. Regardless As for the the on the it markets and happen, reduction Until constructive. or XXXX clear rate

to transaction a more fundamentals collectively. On heightened deployed with industry, note, which on We can year come sitting commercial to seller the capital we a Therefore, sidelines be expect the weakening substantial challenging in of pressure active to turn and real and lead are more certain classes. investors will banks waiting will act of shock to as but capitulation, to terms a certain declining look a for and anticipating more also positive volumes slowly amount the this valuations on asset to to we XXXX, estate absorber. place

investment strong are If by to have are term you across capital that long deploy, various opportunities supported types fundamentals. there property

not for slow patience sign a clear there and may entry be opportune waning is an to a point. investor XXXX likely However, be after

interest been namely primarily have our diminution environment values. trends reduced resulting As for markets speaking, broader we asset CMTG, are rates our Generally rate attributed activity. to can in and and immune performance in borrowers the the seeing portfolio be to capital market, higher higher not the

and that approach spread are no these equity more even dictates This a now, our that executive simply be, investors know estate be which real lending solutions-driven will focused through requires experience we cycles, critical. Real as all This for were believe as pass. to disconcerting ground To environment boots portfolios such our for essential all quarters. I is now me has what we that be mindset to longer Mike. to expertise. are too much extensive a coming this we managing now over and prove the a game. may I deep can know we thank demonstrate a turn gives shall will we applying equity ready. real extent, to through you this to comfort estate will to the this, large the it do times, team opportunity that approach navigate we over inevitable problems. We the reordering As made call on estate

John McGillis

Thank you, Richard.

reflecting project maximizing of modest liquidity component a XX, a our billion generated of in multifamily construction second million weak more a California part December million. our of to the portfolio despite sold rates. offset earnings loan CMTG's our quarter net addition million sale asset the there fourth was year-end, For strong the repayments the in and sold sold part Distributable reporting a in to primarily discount funding were sheet. held a benchmark per existing which share. speaks smaller X.Xx sold borrowers XXXX, and quarter-over-quarter of to The improvements on early quarter, with income result excess the assets performance a at nonaccrual you prior multifamily to AREA future by earnings to earnings impact portfolio. loans quarter. Distributable in discount sale, discuss dividend underlying loans This Near detail first the the balance on December were large charge-offs meaningful in $XXX loan in operating by GAAP usually followed total commitment representing actively primarily at of million full cycle. higher million. September was a per for quarterly X change and of and loan the due tight carrying eye the component, loans loan for coverage. which held quarter third earnings floating a ] exposure at with at XX% secured the of New at decrease $XXX portfolio. At share, its out of billion AREA $X.X in floating fundings CMTG we the per and then City credit primarily and per impact Subsequent on the York distributable who while a on mixed-use rates in XXXX for to par, acquired gains certain funding monitoring its portfolio X by In of $X.XX placed and hotel of hotels, follow-on with quality [ see of the buyer exceeded fact nonaccrual at per loan of the $X.X loans at single affects seasonality $X.XX that X X share pressure improved by of and was sold deleveraging per $X.XX the per New share. quarter-over-quarter liquidity in classes impact UPB. In prior compared were prior believe fourth quarter being $XXX mixed-use dividend $XX goal during share was of $XX during realized portfolio's York a transaction will rounding resulting secured fundamentals. cap development this eliminating placed and gains in for value. of the X X sector reflected hotel net share in multifamily the XX large to for at loan that year $X.XX its par million, offset was improvement by quarters, generally at to our adversely $X.XX of realized per X shortly, I quarterly a will our loans of be reported portfolio quarterly Effectively, case, fourth due funding The loans The value generally share, the on loans came as at XX% a which September at was largest and as the of aligns share our carrying sell charge-offs significant variety well to is and opportunity $XXX of of future term, XX. remains commitment total, XX% the We've keeping rate construction been were reclassification XX sector, watchful the prior principal to City quarter, reasonable were the fourth the third quarter to par rate of principal a of future the

decelerating have in property negatively NOIs been rent labor rising being certain by rent contraction costs. insurance level or and growth We to impacted observing addition

continued the exacerbate environment rate as the they Limited be sector. operators. housing rate interest with and replenishing cost mind, on we reserves, view can extension for upon many pressures have a commitment mortgage owners of requirements, where in sector. cash assets. borrowers the drive pressure will will term as their caps, operating of be demand placed term we our and higher challenging are combined if interest leverage. Near financial the favorable issues That Additionally, associated said, to loan anticipate with long operational flow multifamily there rates valuation maturity to continue we in negative and continue potentially working relatively home has a in position the higher this having multifamily multifamily on with supply outlook of With the to demonstrating purchases circumstances will replacing well the

outperform basis. markets we growth on believe high will ahead, a relative Looking

and don't in see inform our remedies. pursue working have assets, to class we commitment the and will Our our a continued operational to strength of experience we conviction financial borrowers, the with the approach continued conviction if asset to

Now, increased prior average the for risk from weighted quarter. rating X.X to the portfolio turning X.X portfolio credit. to The on

grappling higher are risk downgraded and loans quarter, keenly added service. the as loans loan X consistent It's payoff what that rating near have X these service NOI is migrated note maturities. and was our on as all A rating. interest environment to to also of but are conditions recent X on right declining or rate mentioned, or pressure, Richard and risk to multifamily We loans mentioned. we watch therefore debt we a required, meet I with term the loans previously certain to of list. additional current that With to loan borrowers debt focused fourth current a During is to the experiencing migrated no downgraded borrowers' on that X a due important valuations X loans X with ability extension downward

York New but has City fifth the is carries default a Finally, downgraded significant that loan been payment loan guarantee. a repayment land in

in collateralized In by UPB nonaccrual Southern addition, was one multifamily California. a million, on during loan quarter, X loan previously construction placed the properties $XXX under with of X-rated a

As of of very in year-end, all our the will completion sector in located, quarter that tailwinds loan upon we third are we Because worth and our amount. be well been and has have well collateralize that X proceedings. through the accrued believe interest multifamily the of in The initiated collected. loan excess longer-term generally, conviction foreclosure assets

process, through a which of CECL, this the to resolution, all line we pursuing. With as we Specific X.X%, is work regard in percentage XX.X% are there are with potential As was specific reserves. UPB with several represented of of currently reserves total the CECL CECL reserves of to CECL prior quarter. which loans UPB our paths

of our comprised the X-rated We and managing as counterparties of managing as new X.X% loans constructive with remains specific top portfolio. no priority. have the on frequent XX CECL loans. Proactively important points of is X% year-end. conversations equally reserves Maintaining general loan a and basis reserve our was liabilities remaining on CECL our UPB as UPB The of the of collaborative

we reduced deleverage it look we in continue challenged of As to and that property continue our cost leverage portfolio of to doing throughout and the more In reduce will a funding. XXXX on a XXXX. opportunities course assets result, number expect of over have so, the are for types

employ that of we XX% During liquidity credit includes these it's $XXX a reported it and million, loans rates as relates total liquidity, totaled to in loans. Unencumbered interest and also longer believe a $XXX mindset management. At times, undrawn which we and cash higher senior XX, which were for capacity. to December to approach approved million conservative adopt prudent

also the addition, $XXX AREA unlevered. New held million York was In property mixed-use

billion portfolio's commitment future year-end billion decreased over to our Our course compared the at future steadily funding XXXX. $X.X $X.X December XXXX. commitment At has XX, of was funding

originations Looking like we'll the to capital in now ahead, plan over year shift a market prioritize questions. would until favor liquidity, to liquidity via there's the we preservation call meaning for dynamics. I deploying Operator? open to

Operator

our Shane do have [Operator question first Rick comes from Instructions] We from JPMorgan.

Richard Shane

talk realize there love you 'XX, the where an in words a given into to current market some see also dividend rate. that a dividend are a where environments as to signal to -- I'd dividend and this advantages high move are almost a starting a capital, run high in Look, this what in you And retaining point, into you're there of not case capital so have is, for pay at returns? potentially income there -- dividend. recycle 'XX distributable reducing adverse it in be I policy I as are, to where don't retaining about reality that like particularly to you the the position cut, terms to as the opportunity. you sure But you're made Is I'm right is the bullish the can

John McGillis

felt to a we're Rick, and portfolio -- it back thanks to high, us our it's for, retaining that, now, recall, for at We continue bring that is XXXX and more that'll it's to at sort Board to pivots the dividend opportunities, need right a time. looking very capital But try good capital the we cut good in anything cost level, and the question, very is a market we in other factors. early third this of question. highlight, distributable Board foresee And outlook quarter funds, use you among be point but in of -- will if be properly what too of we the may moderate going of liquidity to you something evaluate. our our look dividend the our was on our earnings. quarter. based at part of sustainable term with And on to where be as something every we But

Richard Shane

a Look, act, get the much it. understood. And weird it, and Got I balancing very totally I it's appreciate answer.

Operator

Our from from UBS. Douglas question comes Harter next

Douglas Harter

Great.

as future Are As looking funding prioritize 'XX? continue reduce as you loans, mentioned, about and through liquidity. go commitments we to that are thinking looking or continue new to loans not to making sell you you to

John McGillis

Thanks, Doug.

will see we to that current execute loans continue see repayment future making I existing in funding I that's be to And activity we at opportunities commitments to we're market portfolio. every relative think, we -- loan on the construction loans existing at it's sales across business, the And in environment. not opportunistic constantly new portfolio marketplace. needs until loans, requirements liquidity as the something think, we our looking something likely activity, sort that sell the more future of of on expected repayment to look we're day, in the funding opportunities

-- of focus portfolio -- start new origination opportunities. the unlevered through to is until or leveraging at before think, on we out repayments, continue liquidity it really how existing assets look generate So loan to is the I we sales do

Douglas Harter

then a thinking And to Is loans? assets you the to get Yes. you about think for? and are therefore, just which target you selling closest Or par kind about of thinking How sale consider can to you of assets assets selling? quality follow-up. are how where which that some better

John McGillis

looked other the future loan future with balance a loan. it's near-term deleverage funding a I had loan we quarters significant a and were liquidity, to it we the the generate decision to that lumps was best on. -- a to X a quarter commitments. able But granular this sheet reduce as of combining cases And to on hard by like was where, sort loans another made a saw we And this at And couple UPB. we And felt back Yes. our a back made very that off. very opportunity of and case, and we opportunity the a funding collateral, decision. loan it there's sell were decision. close obligation, that loan by underlying we It's ago, pay in to discount deep the very move to take in the and tough quarter, the a mean, -- it sell much maturity, ago, at

us. checked regularly, we that that a case-by-case look and at a lot of So it's it's as well analysis. for something boxes be to But going

Operator

Our next question from from comes Sarah BTIG. Barcomb

Sarah Barcomb

of your touched just of of the just these sources make additional in liquidity the subject lot those Could unfunded that commitments. you for your I over supplemental. had highlight particularly liquidity can hoping walk liquidity me wanted of I billion liquidity to on I but know, here, You you've funding million given commitments, we a sources sure in sources? through dive on clear. there's just $XXX a

John McGillis

Sure.

not the walk which I our you're item through but supplemental liquidity, I'm liquidity. referring and of I sure to, sources think can you

We have we we also a as resolutions over assets well. that occur own portfolio expect the well medium an as and consisting senior term, is loans number loans, that under and $XXX that of near-term unencumbered loan unlevered of about just repayments of primarily and AREA million owned unlevered near to and as

those are So to achieved, on as financings financings we've fundings respect that our commitments the in remains financing obtained place, a funding but draw and those -- financings loan loans spread with construction warehouse those in financings. that to and with on then asset-specific of funding well facilities, And future it's as across future place, already future variety the ability or and asset-specific obligations. primarily

Sarah Barcomb

And idea been modifications? on some magnitude the Could gears And color of And that in supportive -- of the can my you then lenders you're just for active give of the for terms? near if have Okay. loan modifications us Great. you term the here? repo these here follow-up. an switching give so, negotiating

John McGillis

I'll let. Sure.

Priyanka Garg

in Yes. Sarah, I'll question. jump Hi it's thanks Sarah, for Priyanka. the here.

of with occurred that -- what Xs, just -- list, driven migrate out, discussions by and we we is maturities borrowers. our that are or see really exactly which did to and occurring having that have So modification were we're watch different those a also are near-term have you pointed loans handful you

of watch sense So if gives the at you list, you active with look dialogue that borrowers. a good

with you In really principles: means expect. firm granular capital market, committed the sponsor, is operational all it's dependent with need both But and we've different would to we guiding One X terms a of on held very the flavor deal, and that those of sponsorship, by things that modifications, expertise. deal

of bringing want is work down adding So if the we're to meaningful and in not some and can a with to guiding that's the table not second they're the that's what We're also them owning, to the we we're business demonstrating capital to principle interested do. But lending that road. going value, is the in borrower borrower. kicking

picking agreeing sure partial accruing make we're interest want basis interest. to So or issues we're on We back the to not on not exacerbating end.

in loans today X our feature, only As our any pick X% and have only we that sit of that's of have kind about UPB. we here portfolio, small

very disciplined we're conversations often very, want a counterparties, being in relates to approach the when we're part last been we're modifications. And it no as sure tri-party we comes negotiation the very was financing your early surprises. our generally then, effectively with question where So they've we and these of and making them, and it as having supportive believe to

the there that, So we'll we're their really around are and make that discussions what -- depending the have to identifying situation are, buttons upfront. hot want but own sure issues on we

Operator

Our KBW. Instructions] from Jade question comes next Rahmani [Operator from

Jason Sabshon

This is million could around the the third It'd year-end, color around quarter, on be be it stands any helpful you $XXX would overall today. for in update, $XXX $XXX helpful. it that then in it was at and I Jade. Sabshon where million us liquidity see was if So and February walk million? on change through Jason

John McGillis

of would I through loans. of some portfolio that loans say repayments in we continue work on those the potential resolutions work of to existing to Sure. continue and

generated so we the sales, accretive continue have liquidity our addition, down paying liquidity to between I seen week or to we a pay what of which In loan borrowings the of facilities. the payment manner. we're an used we as deleverage. combination that also that's from end down we available Obviously, and -- ago, primarily XXXX liquidity in think on use as well net to leverage And dividend you've existing a had

deleverage repayments work a the continue and opportunistic on sales execute to forward, lot So, use portfolio loan more I think of to going liquidity that continue through across and see existing sheet. going we're to try where to the we to balance loans this

Jason Sabshon

could the Great. would the be on and for And -- it was shows X you helpful comment just the that if for, reserves to reserve? flat rated comment loans, Also, presentation It switch the could loans? gears, X on on general could in both so on to CECL risk increase you declined that? despite earnings you risk quarter-over-quarter,

John McGillis

Sure. as The in reserve the how have model. X-rated CECL of staying built despite loans relatively our flat function a increase out we CECL

that category, So into property we -- had underlying even multiplier already those loans had -- the we they of though to those X the migrated applied given were loss assets. type X loans, those factor rated projected a and the

what the So had with much respect very then a the from lot CECL to the into that's captured but during there reserve, the that And in impact sort that -- history. that prior little model. but was third that's I really counterintuitive, already movements said, favorable a small goes of data the of fourth quarter general data a macroeconomic we quarter, been reserves. And it were of a sounds that historical quarter. in the know some relatively function of to loss

Operator

no have currently further We questions.

like back Mack closing remarks. would I to the So to call Richard to you. Over for hand

Richard Mack

for and as all you, your of and joining always. to us for thanks insightful you Thank questions

do we see we stability opportunities as estate and first. The we benefit in course questions liquidity increase this mark asset interim, and the of show lend Let and being the it deployed in capital offense a to market [ confidence some call is to is but leverage environment. saying We summarize real me want likely is that market by In capital able pivot offense, have managing. balancing in about stability. having to once always, on of ], of delevering act in low are a the see this to the that levered difficult

are lending tremendous by borrowers principle asset, we We're is communication are we our do difference counterparties transparent thing, in we sure We to we and and they making in to I our every right made this has with in day the so. from that think weeds from ready to believe that And are highly if enforce ready do so. constant, do and the -- a business step do X. them. them but valued that the And not,

keep So we we to to are while think we a longer a capital difficult for going different and and in see higher work be how for are it, time, to to and know assuming towards through to market. optimism that, is that things this I we're starting the until a look change look market. tough longer, forward But going with

So all again you. and for to we forward thank we'll you soon. to you your support and for joining today, look talking Thank us all

Operator

this Ladies you concludes and gentlemen, Thank today's call. for joining.

now may You disconnect Thank your you. lines.

Claros Mortgage Trust (CMTG) 21 Feb 242023 Q4 Earnings call transcript