Claros Mortgage Trust, Inc. Q4 FY2024 earnings call

• Commercial real estate is in a transition period with slow recovery; interest rate concerns weigh on investors. - Fourth quarter had $300 million in transaction activity, including loan repayments and sales near par. - Credit migration in portfolio; some forecasted fourth-quarter asset sales didn't materialize, pushing objectives to 2025. - Board paused quarterly dividend in December 2024 to preserve capital. - 2025 strategic priorities include resolving watch list loans to reduce earnings drag, enhance credit metrics and liquidity, and deploy capital accretively. - REO New York hotel portfolio reclassified as held for sale and marked to market; five multifamily loans risk-rated five with specific CECL reserves. - Pursue loan sales, foreclosures, discounted payoffs but first maximize value through modifications; example of New York City mixed-use loan modification. - Liquidity at $102 million at December 31st; focus on enhancing liquidity, reducing watch list loans, deleveraging in 2025 with expected acceleration of resolutions and $2 billion in gross realization proceeds underway.

For the fourth quarter of 2024, CMTG reported a GAAP net loss of $0.72 per share and a distributable loss of $0.59 per share. Distributable earnings prior to realized gains and losses were $0.18. CMTG's held-for-investment loan portfolio decreased to $6.1 billion at December 31st compared to $6.3 billion at September 30th. The quarter-over-quarter decrease was primarily the result of loan repayments and loan sales. During the fourth quarter, $99 million in loan repayments were received, including the full repayment of three loans totaling $80 million in UPB. Three loan sales with an aggregate UPB of $205 million were executed, and a subsequent year-end loan sale of $101 million was also completed. 2024 had $1.3 billion in aggregate transaction activity split evenly between repayments and loan sales.

• Focus on improving balance sheet and increasing liquidity in 2025. - Expect pace of resolutions to accelerate, including remaining held-for-sale loans, hotel portfolio, and anticipated loan repayments. - There are sales and refinancing transactions underway with just under $2 billion of gross realization proceeds, anticipating one-third to two-thirds to be finalized in coming quarters with ~40% of proceeds increasing liquidity for accretive redeployment.

• Interest rate driven valuation concerns. - Higher for longer rate environment. - Some forecasted fourth-quarter asset sales didn't materialize due to unique circumstances. - Uncertainty related to New York City State Hotel Act affecting hotel portfolio valuation and sale process.

Q: Rick Shane asked about the third-quarter modification of the New York City mixed-use loan and clarification on loan thirty-three.

A: Priyanka Garg responded that loan thirty-three is a land loan unrelated to the modification, and the modification of the other loan excluded Chrysler Building-related collateral and created an accelerated path to payoff while the loan is current on obligations.

Q: Doug Harter asked about the California risk-rated four asset and reserve levels.

A: Priyanka Garg said they are working with the borrower on a near-term resolution, and the reserve for the discounted payoff loan is in the general reserve based on contingencies, while the other asset's resolution doesn't require additional reserves beyond the general reserve due to its well-located and improving market position.

Q: Jade Rahmani asked about deleveraging, financing for REO taking, term loan B, and valuation.

A: Mike McGillis said they intend to deleverage, working on financing for REO taking consistent with repo lines, plan to work on term loan B replacement financing in 2025, and GAAP book value is ~$14 per share with reserves, expecting results in recoveries exceeding stock price as they work through deleveraging and resolve loans.

Q: Chris Mueller asked about the aggressiveness in resolving watch list loans and loan sales.

A: Richard Mack and Priyanka Garg said they are focused on liquidity and will be more aggressive in 2025, using discounted payoffs and short sales as tools, with the first steps seen in the discussed loan modification.

Q: Chris Mueller asked about REO fair value marks for the hotel portfolio.

A: Mike McGillis said they marked to fair value when foreclosed in 2021, and the recent New York City safe hotel legislation caused the valuation adjustment, with Priyanka Garg adding on underlying performance and the dual track process for hotel portfolio.

Q: Tom Catherwood asked about the 12% reserve for five-rated multifamily REO loans and incremental capital.

A: Priyanka Garg said the reserve is a combination of current sale price expectations and stabilized value expectations, and the incremental capital required is a moving target but not enormous due to assets' cash flow and current market conditions