CMTG - Earnings call transcript Q2 2024 | Claros Mortgage Trust, Inc.

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Operator

Welcome to the Claros Mortgage Trust Second Quarter 2024 Earnings Conference Call. My name is Jaquita, 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 for Claros Mortgage Trust.

Anh Huynh

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

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

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

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

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

Richard Mack

pass in more rates you, X least. Fed picture, inflation. have take a were thank you, pricing we owners to look broader the everyone, of been for say CMTG's been for step since for years When Thank play. the see we in so can rate industries inflation building, Falling And in in the across estate when space interest an translated has economy. in power estate second response to quarter the falling commercial to supply many to can Commercial real to that had by not Anh, estate to into real and has and at result variables the it And started board. able with cost increases this call. real not the expenses multifamily time industry other Property but dramatic real it's back rising and additional demand estate coming It's it us capital office build raising at This this the and the earnings reverses. and have lags short run joining industrial, and coincided movements, morning than costs. rising time easy and benefits stop pattern hurt online takes industry consumers. values disproportionately on for rapidly outsized also term, the been

may New especially cutting costs start investors also is that also on surprisingly supply market in and green impact could significantly. construction cooling has construction and industry trajectory increases the limited shoots commercial rates. dramatically both generally to the Not begin we then, This has risen fall. the since rates estate as the some double resumption a multifamily more be inflation and sustained broad-based just bottom, features for market, resilient of the industrial, given starting suggesting many poised horizon. backdrop calling to positive Furthermore, benefit are have see investors a Fed real in to new rent the been that reduced consumer, a are against a demand expectation predicting

sources from early the too of in long-term multifamily financing the change increase liquidity, large sea and in rate even outlook levels, elevated of historical gradual constructive portfolio, which getting With are slowly concentration. Lenders remains on to we we've the to are With this regard seen willingly to our borrowers still still the continue be secure light recent sector, successfully it's While as noteworthy returning and declare largest in environment. our portfolio transactions investor market sentiment, done. new albeit emerge. private muted a to credit of

seeing drive the in population target rental and will we are MSAs growth, and limited continue fundamental to housing current supply our expect migration housing. to We picture of many overall

asset Additionally, improving made team's meaningful success towards and we to our we hands-on and REO management approach. attribute experience this in have two our management value assets, progress

that believe we us also deploying expectation value the markets, many asset around the the And our focused estate we tailwinds ahead, directing capital rates and reenergize optimism of to for opportunity reducing valuation of reevaluate asset Looking the Fed real remain providing classes. increases. industry relief while rate we that most on estate real expect liquidity, compelling a in how provides are capital will

REO undervalued enables the also to buying future quarter, positioning of decelerated, such $X.XX levels. CMTG an of loan an decision current us our our enhancing mind, capital which back of growth. Those for increase this to inherent the at pursue improving and the per with our value down value back potential implying and may stock, over investing to book while buying cycle. the include believe the price in we number we list current would increased medium now the assets the portfolio environment, do over allocation portfolio I of quarter assets, the in our We Although watch on Mike. rate strategies beginning With reflect the nonaccrual debt, designations believe current preserving all and that decisions the capital our to this In term believe or in had turn of earnings allocation adjust to of like objective Directors decided dividend high-cost paying call is significantly share, quarterly Board third long term. XXXX. of portfolio these factors to not

John McGillis

Thank you, Richard.

XX later Beginning with nonaccrual to were GAAP is line call. share XX. provide loan quarter which to per the of The $XX XX% was second compared quarter quarter. first share, realized on at placed a in the XXXX, multifamily on earnings net per $X.XX nonaccrual I'll per loan million, of earnings $X.X totaling reported partial the and with due loss side share City For the hotel share At result of loan distributable CMTG unchanged to billion portfolio the the repayments second expected compared of left a CMTG's to the quarter, $X.XX attributable end, representing a a $X.X the was the of quarter-over-quarter area by portfolio balance per portfolio March sheet, at had New offset stronger by quarter. offset $X.XX $X.XX $X.XX per June million. during was loan the to Distributable New impact the $XXX which prior in follow-on slightly billion losses information to grew last largest of portfolio. at to of our of prior land fundings quarter impact change share. additional exposure our in of quarter improvement seasonality, compared resulted earnings The York York in partially This per share.

continues mentioned, we market, fundamentals Richard of imbalance benefit housing to long-term on supply/demand As the the sector. and the remain bullish the

adversely affected higher their to borrowers carry, elevating other However, interest rates, they as experience continue among cost by are items. of challenges

likely million. rating, ownership underlying of loans by As portfolio. rated a assets, carrying of quarters. multifamily the take pressure driven effectively $XXX a downgrades sponsor their sponsor. result, than during in a on the value are MSA Dallas loans long-term the by estate these real three same broader this quarter, in of significant we operate pressure are rate of four-risk representing multifamily with on placed the of interest loans these along The the total are UPB to sponsor's fundamentals, with to we coming to assets by the other a loans rather these ability located with Two primarily downgraded collateralized environments million $XXX current The for

sponsor which the in is was relied who foot. defaulting third the of California. investment. instance, experienced capital financial difficulty square loan, has at condo this on above a collateralized outside basis loan, offshore to downgraded successfully CMTG's for-sale this condo of The was In unencumbered, sources sold levels this per sponsor the project Prior that quarter by a on particular well units number

loan, $XX New The the However, that fourth financial development for York The value our including UPB experienced with of path loan them loans. loans of reserves reserves. our and of This did, of CECL is X.X% on make At CECL prior is the building. specific force X.X% has June an restructuring rated was to rated represented find of zoned we land interest. XXXX loans loans remaining new risk City a however, comprised status. sale, since collateralized of is rated has its towards a the quarter. has reserves increased XX, been on paying compared as working borrower X loan loan a the resolving to business to been carrying difficulty, percentage REO. in and fibrate failed progress a nonaccrual total as loan There the have site CECL by of existing X.X% and mixed-use million no reserve the UPB loan plan to a place quarter for We sponsor general were for been UPB Specific this with X.X% on quarter. UPB in X.X% CECL of and delinquent has of UPB to of the the the of XX.X% this

loans the and recorded in duration, provisions increases a accrual to $X.XX During rate in loans similar increase result extent, expected in of and million increases portfolio. $XX a share. lesser the general reserves is on status loss CECL CECL reserve for ratings our third-party in per we or The of quarter, data risk of changes primarily in historical loan

Unencumbered in and our and XX% industrial of X-rated Of XXXX. Subsequent undrawn $XXX million liquidity, finally, financing continues received through assets million overall $XXX collateralized which credit portfolio, of construction that payoffs liquidity. quarter loan $XX Year-to-date, by we million proceeds were totaling office based provide City office of flexibility in $XXX At which We a York additional and received repayments leverage. had loans loan. amount, a rated of carrying collateralized and and approximately a full The liquidity. existing risk were levels accelerate. mixed-use loan X million maintaining loans million totaling REO quarter $XXX of of total June build-to-rent total of UPB, by collateral. XX, New capacity X an reported by $XXX million totaling a were senior us assets have reduced a loan comprised end, unencumbered These asset loan reduced This loans been million since fourth of turning the loan with loan to we on UPB, $XXX and our with Now sales. collateralized exposure desired or transaction repayment $XXX $XX a our cash loans a million loans. activity million. of includes our to approved to of value of

totaling continued resolving loans demonstrating approximately million for, addition, were watch-list In loans. risk-rated $XXX progress in

also turning Before to most to some certain the color with restrictive with operator, of arrangements regard our provide call to the like financing I'd covenants. the additional financial

that reduced we with an expanded interest questions. second these changes on Overall, modifications call financing also provide relationship work quarter, and preserve value covenant various like significantly with through our while net constructively each us our counterparties open coverage now required counterparty, for to enhanced with book conditions. worth our our We to I our challenging minimum Operator, repurchase we tangible market of levels During believe financing our covenant completing ability largest also flexibility would levels. needed to the the demonstrating facilities. while

Operator

[Operator Rick Instructions] JPMorgan. Shane line The with of the first comes question from

Richard Shane

on the Look, strategy In you've you different to with property, sounds the coming sometimes sometimes selling I'd to like had taken foreclosures, you've a past And some way. lot do talk have them. additional your investment paths, It about managing REOs I the when like think required. bit the a little potential has REO.

be and dividend positive. strategy balance on Richard curious about REO. the liquidity if a in I'm is intend enhance the to that capital reduced keep or having if in cash REO changing is you order sheet that You've the made invest to to flowing to going comment

Richard Mack

me Rick, is let Priyanka the of the just but thank let asset, you your me question. Richard. some So, -- discuss for details of let This

me respond the to Let macro.

be moment should this around opportunistic REO. is view at Our that we

going been to cash as continue they're back want cash in about moment the on decision multi, in, are, more the been got, those. borrowers. we to like been want we this careful as aggressive We're the right We've But feel we've really manage up. not of especially now is past, liquidity. assets And we be where taken putting ride We've it. has careful. the X if to able in flowing think both time well only property those and not that the I to be creating they're with focused we've the on assets and we value to take back where

know assets it's we are at time as discount, feeling I a call hard exactly I acquiring sheet Garg, acquiring again, the assets, moment respond at and not while just this think assets? this improve balance value good our bottom, is to to advantage do that, be you the good on but specific to it's a on of this and is time to want significantly. take pretty own about a opportunities

Priyanka Garg

Rick, the we it's value. last Sure. look really Thanks, would is truly what in at a Richard. assets. The on moment from a that Richard add -- migration only standpoint, secular believe thing, not said if to been couple sector, in a focused I of been shift credit there's that in of residential quarters, more that time. you It's And

ability rates the the do the then and managing up in. balance down, come cases a our job we onto better like bring said, to many So, them these rates cap assets much sponsors riding than as come Richard see sheet, value in

particularly a at is So, moment. compelling opportunity we that the think there

Richard Shane

I will the... make

Richard Mack

Sorry, Rick.

more... add one Let me

Richard Shane

to sorry. going make just Richard, observation, go the that -- ahead, was I

Richard Mack

say also aggressive I off these would we them. capital in and find as us we rescue the borrowers wouldn't because real we and we that value more take see pay only be us could taking otherwise, see surprise action

So that's the not it's time is now expectation, think but aggressively. to relatively I act our

Richard Shane

strategy. that back what reality on has focus seem your Look, a outcome by consistent with intent but a through pretty realize focused historic original we've is to challenging period it been managing more I is the optimizing does liquidity, going And your I think where the of it like you're was. been instead approach

Richard Mack

right. absolutely That's

and believe value, be the quarters is back I to relates significant to that we've that and over higher to end pivot likely with time few is for certain capacity cut ability be I as be to the could to increase rate we next here. think think, strategy original It's to our rates cycle demonstrated and create going coming it of assets to here. our what the tried and a very longer manage for would expectation

Operator

the The next question comes from Doug Harter with of line UBS.

Douglas Harter

lenders talk or were You those just talked covenants. Can to negotiations there them of adjusting had you to about order just in about you get any your working with concessions whether kind went? about give those how to

John McGillis

And a this as Sure, I take repo is And This say Doug. always of I'll very sort we've counterparties. it's with looked constructive demonstrating looking of working to be reducing like. through been very assets leverage terms ahead in those our a we've was of would very relationship one. environment we've that portfolio, have much been Mike. current been on the state the curve had alone assets of at reflective what challenges, collaborative. more

proactive because -- very the we've fact, just would I of balance So, I think sheet. deleveraging our in been

in and including on of need were We are to it modifications. the world cash and next some loans them will over The overnight, and to saw our were so It's was but year very while or coverage work to through covenant happen over we we transparent relief the able things, execute work demonstrated course we both going the having an to heading interest perspective, worth with where to some going these and taking lenders terms certain recognized, REO happen net through that of strategies that relief those we tangible to those covenant time. flow. not improving over from

Douglas Harter

about And loan? then as think stack. And a stand do just on we follow-up, of should covenants just parts how the other where term the your with you

John McGillis

covenant, that. that different coverage interest loan has mechanic similar but So, involved is in a calculating term it's a

continue our to we coverage covenant So, interest comply on loan. term that with

facility, in having over worked this repurchase of them discussions we've or modification, August loan year, latter that with the we'll but term of facilities, to pivot to of in just our agreement Now early expires it's certain that where of around going into paydowns a of stay sort maturity well but too through years. necessary XXXX recognizing the term these to matures potential to part yet, know try of before the extension, of go extend ahead it couple

Operator

The BTIG. the next line from question of Tom with Catherwood comes

William Catherwood

of Are listed evaluation your that obviously, where that, revaluation lower in I'd is you allocate mentioned stuff estate options. on options investment takes potential of time, as of and the a to takes stock debt real investing buybacks number expectation rather time. capital you balance than some whether are want sooner what are later more a assume be taking of to be it's far and parts higher medium-term driving that remarks executed there buybacks other you and sheet more that Richard, ones value rates or and could those as that likely options?

Richard Mack

Excellent question.

going don't in on say we sell-off that across us that shot the dramatic turn. what of rapidly market we because to front we're have execute to or I the expecting were is been bow want of this the Fed. we estate expecting a was But liquidity is. it capital what there expecting the market we're real come markets, in that That's bit going back. is were of because change it sending we're to the seeing be seeing to Some

we likely is maybe week had us any greater move anticipated the a of So, ago. were already expecting much to than just this, be

kind ready were go events. really of ahead getting set of we up and and So, to these

do there So, can rapidly. think that we execute things on that are quite we

will paying has and the is away pace Of off more the as more towards what we is everything all them pivot be behind be pace has want stock. on well debt it because course, things origination We decelerating. REO accelerating, from or the that on table to of see component as been of new been the other like payoffs repayments problems table get, while we of we'll the REO it likely the

on the And table. so everything really, is

responsive. see we've a take where waiting like was hope that steps. Here, reasonably to bottom we've felt to just something we're those and ready been come to point that the I

William Catherwood

about, into one ties you're for Mike. this the next which of thinking kind maybe actually that And where question

of the especially around you Richard balance repayments, are potential building versus year? that And repayments terms for have those Given fundings how you meet for mentioned. investments that the this thinking of liquidity your more those XQ, between are post level expectations of allocating this what in proceeds committed accelerated activity year to opportunistic

John McGillis

Sure. of XXXX. repayment going capital this year what we line into excess do of And I amounts and a have are the good have pretty it's think decision to of when allocation just early sight rest significant we through capital, always And we it. the of with into pretty part

take we As highlighted, a judicial REO. assets That expect do to back Richard is into process.

use that to much out it pretty potential But a that have was status, do and share in of decision uses we keep work earnings to solely debt that paying dividend that there. back in everything grow paid should to given looked timing. it will think we indicator REIT I need to be And that level the out higher need or do there's as us our considerations earnings Obviously, to those system well our to some cost as time but that new think what things help we liquidity be. lot dividend and fairly viewed of status. there's we you value. in at We thought it the through we that be this more REIT accretive of or some perspective originations, distributable get for to where we've pay going to capital to at it around an grow book with a A purposes maintain quarter. And of control our would dividend from as don't meet point So, best sort maintain of buying down buybacks frequently, leverage it's to fed capital. that cut what into time decision of sort our

William Catherwood

one last Mike, me. for then, And

had You XQ. repayment loan post office mentioned

that, the discounted consideration And part with of along the a slice came or two-equity repayment? was a that position? senior For position interest what that were the the noncash of mezz loan

John McGillis

-- handle one? want I don't Priyanka, to Why do that you

Priyanka Garg

Sure. Yes.

out that So, an about value versus piece back. comment is a about New office in question, And per think that in a more cash I'll really going mortgage step how not to other view just quick, improving asset take an that we traded fundamental of we explain a we a office is to of shift reducing market that's we with come York And in is value, asset exposure, transaction. that that exposure positive were sponsor. trading support a on become We Brooklyn, back with basically into improving mentioned, retails shift capital class vacant are on the your as to And vacant to back additional just traded when owned we what's of a direct performance, flowing earlier trajectory likely asset City fundamental that shifts thought improving, which out building asset shift. class. assets versus by credit then, answer in

and an I a prior. from assets visibility as So, view it asset quality we pay versus off were to the positive trade standpoint very that in

William Catherwood

REO? will holdings? into And Or show just kind those they be positions other your of equity as bundled in up

Priyanka Garg

yes, Mike, other do that, going want based to just to that's income you be ahead. go -- take on

John McGillis

Yes. expect expectation. extent recognize, and that distributions, to the current That's expectation, We'll the financials the won't basis would to is reflect be basis. in cash for it we any our receive

Priyanka Garg

It's additional the assets. just it It's bolstering how That's is, credit additional collateral. support. underlying just it's

Operator

Instructions] Rahmani from line of KBW. [Operator with the next question The comes Jade

Jade Rahmani

What's to the you take loans of into REO? dollar amount expect

Priyanka Garg

hard end where borrowers up we're that. of the on instances, about X to of given prior it's unclear quarters, put just itself X are But migrations X% that lot of a going credit is I had where the we specific and to working that's with and from UPB. sponsor to in in over number on, in that certain we've a our just think

there I become But are we sponsors, REO. be up depending other loans. where on additional end likely would just might So, say those said, to with that

Jade Rahmani

X% The beyond multifamily? is Dallas the

Priyanka Garg

Dallas No, inclusive that's the of multifamily?

Jade Rahmani

that for those in REO? five? rated Turning loans you risk take to I'm why you be have Shouldn't to do to ratings. expect risk risk curious

Richard Mack

in the of is stepping can expected that reserve the -- handle go requirements. on reserve a loan REO to think, whether we'll is there required around I is accounting to value you that prior we anything add know to all mean collateral very feel GAAP the to you long-term it's I appraisal Jade, be comfortable of it. Priyanka, the that? get asset think but doesn't function Priyanka, a question, don't of we want a Part just required the Well, more may foreclosure, or to But if specific I into. with based these, not specific on you be because

Priyanka Garg

exactly No. right. That is

Operator

are in no additional time. questions this at There

So, I would back remarks. like any the now to pass for closing or conference additional to management

Richard Mack

to Well, I more for with theme feel is looking the thank advantage bit of to confident just is of upmarket the to which want forward in us. being optimism background is continue opportunistic with our likely capital. we the and to of and to everyone main be we an swing today the on think and even more us of that that's background, towards to questions able opportunities are time the against the and with really that that momentum the now front joining conclude liquidity for call are to today's repayments And decisive call, a and market. that more this we and more take the And in

thank questions. you we of sessions have you you, joining. for some we'll follow-up and So, sure with I'm appreciate all. Thank all your

Operator

today's participation. concludes Thank for your conference call. you That

disconnect now lines. may your You

Claros Mortgage Trust (CMTG) 6 Aug 242024 Q2 Earnings call transcript