CMTG - Earnings call transcript Q1 2024 | Claros Mortgage Trust, Inc.

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Operator

Welcome to Claros Mortgage Trust's First Quarter 2024 Earnings Conference Call. My name is Elliot, and I will be your conference facilitator today. [Operator Instructions] I would now like to hand the call over to Anh Huynh, Vice President of Investor Relations of 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

Executive We also and Garg, and Vice Executive President, Portfolio leads who MRECS Management. MRECS Priyanka leads Vice President Asset have Originations; who Cullinan, Kevin

Prior to you CMTG's information reference documents these distributed on to with presented and the release this earnings call, today's call. in we encourage supplement. conjunction We

please questions, contact any have you If me.

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

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

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

Richard Mack

year cuts expectations, uncertain. have all, what you a the The be provided first us different last rate meaningful now much come seemed revealed have inflation rate Thank all than to Unfortunately, have the this call. certain volatile, months Recent making Fed the of very joining but generally several frames sense been CMTG's in higher narrative. and quarter to decline at earnings for morning for beginning in optimism. inflation investors

into general the estate, challenging As XXXX. we will real and of remainder believe commercial remain it the outlook year relates for the for the industry to

headwinds around of continued interest because in the direction environment and the rate the clarity of expect higher of We lack rates.

further complexity number actions, the in Asia. U.S. including Ukraine, to debt to economic add Middle variables election the U.S. year tensions uncertainty, East of to and also handicap In geopolitical Fed growing outlook, East trying a addition and levels, in

new In wants interest our that especially this one value view, real has in to declines No it is uncertain are observing interest real of also cuts been estate have just around available. and buyers acknowledge but around transaction and investors This and the each but date committing rates resulted limited rates not estate spreads has capital stasis. if and driving in placed environment, sell. Sellers valuations vastly rate product lending lack valuation for investors' markets only we to where increasing dancing, real cap lower ability the this less but expect not short-term that volumes that are, been corner. Against not to down financing have are have to of estate them rates bonds many resulting backdrop, refinance in despite reflect slowly loans other, decreasing issued to uncertainties. where properties, types recapitalize

remain returns, across almost to evidenced volume this historical cycles, awaiting not and attractive transactions looking asset reemergence norms. of estate by to muted provide an spreads for recovery. a estate starting investors confidence Real to tightening but real is it liquidity real conclusive. yet a transaction estate be helpful, real investors the revalued relative means sector infusion. by This reflect market are may previous real Similar While and no capital risk-adjusted the active much-needed all as estate classes does and is to

CMTG our environment. has been calls, through lens a As executing from business you of strategy the rate higher for prior know longer

and contend rates borrowers uncertainty rates and shareholder we leverage. value. trends stance optimizing Higher will our and look with will loan where into for have resolutions expect and slow repayments to continuing committed continue that financing and prudent interest portfolio, is negative a to around the We we like it we believe impact higher interest to translated to borrowers these ultimately that timing costs less continue defensive to predictable. Further, spreads conservative Therefore, as loan and repayment is given ahead, with be settle. many remain

we proactive a During asset remain management our this for will key period, team. anticipate that focus

As we to assets operational demonstrate only expect work financial to borrowers, them commitment with we to their a commitment them. an not but

For X-rated our received construction this the market, to over only turn the of the the loans. I X the that and to now we would liquidity believe repayments that but X loans the on a of which first not the speaks loan. return starting example, also quarter, to notably, during quality like call Mike. sponsorship to We is underlying to was assets to

John McGillis

Thank you, Richard.

impact as X which share portfolio, on the as the $X.XX first the later negatively for is earnings share. the change impacted realized reported loans loss seasonality by The New XXXX, the We'll York in a loans $X.XX result per share of per compared more GAAP per detail CMTG loss of swing and well for quarter share per on on nonaccrual to City of were placed per of quarter-over-quarter prior to quarter. losses primarily hotel an For quarter, call. discuss share accounted of the a net area $X.XX Distributable $X.XX share. prior $X.XX the first share per a during per which $X.XX nonaccrual distributable earnings

of traditionally the York portfolio sale. of to attributable repayments loans $X.X the investment quarter reclassification $X.X in the discussed, New billion million hotels, to quarter. CMTG's and $XXX for loans to than fundings at is held to compared As fourth billion City generally the March at totaling loan million, million of by from weakest decreased held X-rated previously a $XXX strong offset $XXX for for more impact the particularly December quarter-over-quarter performance XX. The is change XX first quarter follow-on

sales first sales XXXX price and such XX% $XXX earnings mentioned as year-end by of for call, of loan's the million. asset last UPB. during held classified we of loans The completed secured of the represented Additionally, a XXXX, at for as X our the on loans variety classes sale quarter

As were for not classified loans loans portfolio quarter noted, held because sale impact did these sale this at the year-end. as held loan investment first for

our Reflected results two a risk York on the quarter asset been X loan X-rated XXXX. $XXX in loans, City of hospitality construction have since million first rated New and resolutions located the in first

borrower lender the executing During identify full in quarter, this as loan, of including speaks capital able a on markets values environment. we business received collateral a normalized transact interest as that potential believe interest default refinance borrower's We plan, Despite repayment with CMTG's outcome also our suggest more to contractual signs the late our all with and well to some loan conviction fees. of another position. this to delay well the successful was its and and

secured risk multifamily the by quarter remaining on assets we And placed After The UPB. a in completed rating a careful unfunded with April, of second million XX% status the last $XX sale to of the loan a we loan, at and XXXX course loan construction California of a of $XXX Southern the concluded nonaccrual quarter. action. in second that downgraded loan was X have in consideration, commitment X million been best sale of

principal levels, liquidity, balance our charge-off. quarter add debt sale, of $XX for enabled reduce to Executing this sale and net sheet first funding reduce future held Our million loan as a us obligations. reflects the

of While these to portfolio. that XX% uses largest decided and at after capital careful our over expertise consideration, there types of multifamily XX, of our we assets, represented sponsor and assets. At has and assets sell construction take more exposure the multifamily resources to stabilize these complete effective the were development required our March

in conviction have to high-growth markets. of sector the focus continue We particular with the long-term a on select outlook

seeing are and with of monitoring borrowers we mentioned, some and we borrowers. the pressures are working negative leverage previously As these navigating actively loans our

$XXX on placed combined nonaccrual status. UPB X with of quarter, the million loans During we a multifamily

collateralized The Las MSA. XXX-unit loans a multifamily in complex first by located is $XX million Vegas a the

complex The a loan second third in Arizona. a $XX by a Texas. complex collateralized the Dallas, multifamily loan And multifamily located million by million in is collateralized $XX Phoenix, located is a XXX-unit XXX-unit

maintain operator regard asset sponsor's experience sector, to with management informed outlook these favorable and developer, an has our a multifamily the long-term to continue loans. owner, approach and on our nonaccrual deep as We

We loans, and borrowers' X multifamily sold inability flow to are remedies the with new result been solid the sponsor X contend ability the same cash our compared to to highlight we plan. operating all properties which are occupancy, of the of a as that higher nonaccrual share were loan business These execute these impact to primarily on with their nonaccrual downgraded loans pursuing their I'll have different. and costs aggressively financing which vastly new want construction

assets capital By relative assets and to multifamily these the business may at improved mind, on comparison, nonaccrual in requires in resources translate cost remaining lower reserve. comprised and X-rated with for and this holding status loans the than loans. With of select UPB in-process foreclose term. much UPB of the reserve was flow we foreclosure CECL near reserves loans but in-place X.X% opportunities be on UPB pursuing borrower's a much as earnings to there on the to the loans levels. Total X.X% believe quarter. specific for construction execute percentage a may basis cash original increased XX.X%, our on plan, less the the with Specific CECL X.X% the prior of X.X% a CECL general The reserves UPB of loans to of to X.X% compared and of represented CECL leverage

to reserves of realized $XX recorded sale of During sold on the mentioned $XX that the provisions the relates loss and loan to XXXX. we was CECL million, quarter, April previously million in for for held transferred which

approximately financing able credit reducing future loan to of declined million To net liquidity. loans of we million. million to total $XXX includes borrower Now the expect be million totaled a balances portfolio's equity March we billion expected commitments, $X.X projected were March $XXX last of senior reported our this, turning to to loans. $XXX or which loans, leaving $X.X the undrawn with funding of XX% the unfunded $XXX our of unfunded billion which million have quarter, to $XXX in-place to financing precedent and do commitment which to $XXX not fund XX, $X.X requirement million. $XXX X.X we liquidity, Unencumbered financing and XX, meet million, believe funding Of aggregate funding, billion. from total we of capacity. levels conditions we course approximately million, in capacity commitments, had fund cash relates years. At loan outstanding which to over will $XXX approved and of At Compared

repayments quarter, due to Our combination voluntary loan balance the $XXX declined from assets. financing primarily loan proactive of overall of specific sales million prior as and as well a deleveraging

During of bringing deleveraging $XX this the we to $XXX voluntary first XXXX. million quarter payments million, since the of made quarter, total

loans respectively, of XX% loans XX, XX% risk rates advance lower X-rated a a X-rated X XX%, at As for result, and maintained to financing rating. and materially March loans compared with

a of has environment. context for the and in portfolio our navigate that the credit longer believe manage multi-cyclical management to rate higher deep markets team and challenging continue we through mentioned, this industry environment. to Richard As We capital experience

we believe developer, various in range situations. evaluate our and In an and us owner, operator effectively maximize of alternatives with sponsors insights experience as and to that additional recovery addition, a broader market pursue provides

continue deleveraging, asset and Looking ahead, on our priorities to focused loan management. resolutions, proactive proactive be liquidity,

the our for liquidity pursuing the to Over questions. with now loan management commitment past of call sales objective and to our resolutions open quarters, would we've to challenging recoveries environment. Operator, an several remedies in demonstrated I a executing maximizing from like loan

Operator

JPMorgan. [Operator Instructions] Shane with Rick from comes question Our first

Richard Shane

dividend. Look, that or up is to I question dividend think sustain obviously the the the the the comes ability to desirability number sustain one

sustain or [ these from does -- excluding obviously that's levels rate, noted losses approximately of DE there's XXX, Is to realized [indiscernible] $XXX the drag below guys preserve dividend apologize $X.XX a dividend it million I make non-accruals. ] it of You run losses current excluding to at the the given sense $X.XX, liquidity?

John McGillis

This is Mike. Rick. question. Good Thanks,

think this keep Board. to is with seasonality pre-credit the When were each distributable adversely mind in think I earnings New at it's QX, that we look the of portfolio. by that I quarter York at City impacted looking something important our hotel

we our what dividend of is much But to this, facing we look $X.XX rate. setting each may level. But to we with paying dividend this be every adjusting looking at over portfolio as a our we Board trying that normalized quarter. to that part the level, at to get look quarter the long closer So at term dividend across look when scenarios capacity and at the obviously, multiple medium we're really a

we that our Board with continue look something at So regularly. to

Richard Shane

little a loss. seasonality investors the Got Look, it. a is was I caused helpful so about And But and we've holds on a on understanding appreciate that. X-rated I appreciate there the point that it a development realized you understand the a to really that when you received help to held from in And question for guys that actually a us to hotel. is, move the you can just of forward, numbers. very obviously, sale, migration the loan was that them good again, that's very, times what couple things quick quickly? there act other from bit

Priyanka Garg

take Rick, one. Yes. just that was was I'll that new it's Priyanka. really received. information It

we year-end, was We and were in buying owning approaching during had that asset. loan pursuing quarter, on this publicly date us foreclosure a the at it, from of we're on you. that credible available. as saying, first So we foreclosure And we that approach began interested date and buyers were a a number foreclosure focused

getting on today, the developing, extended we the non-earning of in today would spent between asset result And a and foreclosing lot of on time. versus a the analysis the lot holding did liquidity taking so a an our in development discount of asset trade-offs for which it, stabilizing time conjunction period with team,

that good to so price quickly. time were earnings. relative could we impact was a be -- of realized, It particularly amount when price And talk was account the into we a the could it amount you really with potentially who on with concluded the that credible profit and of and engaged close buyers take the the that particularly

the It just us. that So migration. was that available really new was information was to

Richard Shane

have just I those you're thought the frankly, to And context of scenarios that's that's Priyanka, to on decisions and over process appreciate not that in that make helpful really sort over again. unique, understanding guys the face, that. going probably and you and I think the

Operator

UBS. We Harter with Doug now turn to

Douglas Harter

indebtedness level Turning that interest of us back those some as And all well? of include there? to give that asset liquidity. your of and just -- coverage kind then modified an debt as to Last of comfort kind quarter, you you just had yes, around stand your your kind around Can covenants. update covenants level where you covenants, does on of covenant

John McGillis

covenants dialogues as all Thanks, interest of comfortably out. complied at to lenders, with with not TLB to this covenant time mechanics. constructive them of our on Good expect something outlined QX able a work question. our Yes, been our that expect the particular, lenders, and covenants the We've as And modification having be passing investors very we'll do to in Sure. with Doug. we're of in have other we XX-Q, at then our our well. of all end work repo we

with So we things to expect through our work be able these counterparties. to in the ordinary course

Douglas Harter

make if Are you to there what to those go negotiating? ones, conversations? to just Great. any prior that have you don't Or give you you're have so away trade-offs back currently in the

John McGillis

pays, working your pays an through these financings I repo behavior think dialogue of is it's responsible of think of particularly with I kind we've over noted, it really quarters. I as I counterparties. No. portfolio, -- the benefits things pretty mean the the as kind being maintaining transparent lenders. our counterparty, aggressively of And deleveraging a with past think a that just and X And course our open been lot you're

Operator

Fargo. question next Don Our from Fandetti Wells comes with

Donald Fandetti

Yes, looks about can the that million moved X quarter. like talk Can loan it you $XXX a multifamily you was California talk this to migration? about --

Priyanka Garg

first the a Yes. hesitancy they is there's that at That the had at. Don, needed to we're that seeing interest are purchase a borrowers, as Priyanka. quarter, -- borrower had some who rate protect levels during with cap they it's we to and

a borrower they onto discussions given new have we prior been wanted them, But in X and them And putting did to to the messaging us that migrate month those each watchlist modification and about capital. now. in so to this, discussions. protecting with the approach right they We're from

about asset, resolution optimistic an there. We're the excellent property. best-in-class It's high-quality, kind of

borrower pursue deep the in sort quarters. resolution So the in right we're of those we'll we'll some direction them discussions, with now coming or have and

Donald Fandetti

going feel this to So it least like it doesn't at point? it's as at sounds you sit today, here a X like

Priyanka Garg

no. what Based on know today, we

Operator

turn JMP We to with Delaney Securities. Steve now

Steven Delaney

in and books that. activity. Mike, active does about mortgage -- market. TRTX, most Claros on ask wanted about The was the to sale We've ask commercial represent? And to observed loans March many XX, at the been Wanted and REITs X this $XXX million, loan that how so have that I TPG, it's that

Richard Mack

of loans some same it's to so. pieces That is, X separate the cross-collateralized, on sponsor

Steven Delaney

And Okay. X then you the quarter, sold fourth as in I well? believe,

Unknown Executive

I that the sort at this the loan, X loan, No, cross-collateralized. And was sale then for to other completed as say same of in X it's though held April sponsor sale loans even [indiscernible]. do in going put QX. view we held to end for that sale the one into we [indiscernible] of loans we X QX that's loans

Steven Delaney

it. Got

is in estate. part of -- that is this and you working properties new a this of observations, market? the management, the problems, question how hedge to Richard type the thoughts you on your topic? having of if big years, guess real asset we're this through or Next are through But loan done for and are that -- just as could a bit for buyers? investment. a I many these attractive offer loan-to-own cycle credit the in sale it's in, this that topic your picture to looking for part working appreciate -- I use just they acquire are funds Are who is deep strategy property of real And investors down

Richard Mack

Sure, Steve.

to to Mike? want it, go You

John McGillis

You can same. will ahead, it go be the

Richard Mack

Okay.

many it's combination. think There's a different So I buyers.

they close a bit primarily expect. one as -- been of much in what as type play market because hard sold do as a a at are market that trying to of fund estate or a loans relates real not would really buyers there's having the to it very as distressed par. who to view them, As are there's hedge Those time kind of we've very quite to par and

As is cut family development was that discount, with their through quite made going this to asset a we significant is a -- a sale they're a a of feeling get understanding way That it that hair relates into a to with at that an office [indiscernible] happen. to have make bit at developer certainly, discount. just to to and the to significant a

-- that for that transaction a in opportunities, they're there people So there. there's and searching just high very where we're not a returning think out little there I out lot of just are really market much distress volume,

market product to so quite the that's And feels deep available. relative the

more available there relatively large were that if be at right or discounts adequate, par. different. now, demand think might assets kind at not a of if sale, for I extensive seem feel bit whether little be they But loans, buy to does to

Steven Delaney

That's very time. heard most helpful mortgage around encouraging the the about flows color. capital in And REITs estate I've probably commercial real the some and comments commercial

I So opportunity thank the to your discuss appreciate comments. for and it you

Operator

question Jade final Our KBW. Rahmani comes from with

Jade Rahmani

could It million, $XXX an totaling loan was give please office you originated COVID. Connecticut the before On update?

in underwriting presumably, environment. did factor not So the today's

of Additionally, would asset? million, Stanford, if you that sizable was what's of date Hartford, year. could so perhaps it's the this also maturity which in with was loan, suggest and going on $XXX leasing wondering market, large a in February it's I also the comment on

Priyanka Garg

that It's Yes. Jade, I'll thank question. you Priyanka, one. for the take

during in it the So -- did it's -- mature quarter.

loan. a that the transaction the there is on close We sponsorship a extending are lot where pike. very going coming want down at much, to I but too don't disclose level to There's

more by borrower with So status a the then that, this referring modification to depending one, short-term transaction -- significant after I'm modification to. are on a is the followed likely of that our be

on as global been form important loan in are job with very short good the as said, see. But been tremendous underwritten. primarily -- done the that renewing are can here from and retaining has repayment would I comment the leasing it think originally a very Tenants I credit par term, creditworthy have of said, of tenants. has not the make That we of that bodies. like was That not albeit guarantees so what they happy leases, has support in there's assets -- in WALT to attractive here, clearly a amount most is

sponsor is large we're is mentioned. the it a as but focused loan, I on reasons very the [indiscernible] for well So it, just

Jade Rahmani

able indicate are And it market to you is? which

Priyanka Garg

It Stanford. is -- in it's

Jade Rahmani

about the What of number quite XXXX ones Okay. York like other loan. New upcoming large a condo maturities. It's

market. specifically peers loan in your on had of the One land and New some that end higher issues York There's hospitality? the segment, the also of California

Priyanka Garg

Yes.

Most initial speak coming. broadly just just we're seeing sorry, maturities few final XXXX about there is maturities is I'll maturities. the So that of and very --

we so pay have We to sight also borrowers final on. our And maturities, to And we off extend to a those line we're that modifications them. beyond for where understand are some here those have on working maturity we're with need the this final -- going path into transactions of date. many of in of that

those half are our all dates, extension of as right. of of terms tests to In than initial of maturity meet more their loans going

in modifications. to we'll We're but some do to the happy for not owning modify expertise. back have So, assets, have few them comment, the put We're transactions. the Mike's they if they're We'll work the of operational with to we're going right a capital to borrowers, borrowers. with and these right, business in work going willing to

New that very -- front very York that In a extended, condo no some condo the about York we City of City. small in exposure are has there any terms in was XXXX but our that loan maturity you feel the condo we condos aggregate. high-end have of on don't mentioned, good There's New specifics in

Jade Rahmani

long-term tackling Okay. the a and But potential. And steep in environment a in in day-to-day lastly, all around just seem of with managing be on lot commentary uncertainty, liabilities. blocking emphasis the of management earnings the you I kind and your dividend to asset also understand we're again. volatile of

the you're leeway pressure earning, dividend When downward are book book also paying out protect value. create you reducing that's and in than more take value. step So to additional why not the of on additional dividends

considerations? trough project So on Any comments investors a those clearly value. book

John McGillis

are those Jade, Board we discussions have regularly at level. the

and consider. there, those all raised always good are we points You things

Operator

back closing remarks. Q&A. to concludes now This hand Richard Mack for our I'll

Richard Mack

for joining all us. you thank and you, Thank

times be market up market. we where the we are lock will a a complete real with cyclical downturn. to very opportunistic But We as little market, in tough almost this seeking amidst are these of market volume. even facing through It's a manage transaction are estate the we reiterate,

We are payoffs. loan pushing for

And because this selling are we we that we loans, will loans, are are foreclosing to we we getting We too know are are opportunistically, ready pass. again modifying originate deleveraging.

you thank joining, appreciate and all So for we support. your

Operator

and for Ladies today's We'd thank call gentlemen, has like now to you participation. your concluded.

may You disconnect your now lines.

Claros Mortgage Trust (CMTG) 7 May 242024 Q1 Earnings call transcript