Claros Mortgage Trust Q1 2025 Earnings Report

Claros Mortgage Trust EPS Results

• Actual EPS: -$0.25
• Consensus EPS: -$0.32
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: N/A

Claros Mortgage Trust Revenue Results

• Actual Revenue: $44.50 million
• Expected Revenue: $41.91 million
• Beat/Miss: Beat by +$2.59 million
• YoY Revenue Growth: N/A

Claros Mortgage Trust Announcement Details

• Quarter: Q1 2025
• Date: 5/7/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 10:00AM ET

Claros Mortgage Trust (NYSE:CMTG) (NYSE:CMTG) is a real estate investment trust focused on commercial real estate finance. The company originates and invests in loans secured by commercial properties, with an emphasis on transitional assets that may require leasing, renovations, redevelopment or other improvements to reach their full value.

Its investment portfolio primarily consists of senior and subordinate mortgage loans, mezzanine loans and other forms of commercial real estate debt. Claros generally targets floating-rate financing opportunities and properties in major U.S. markets, including office, multifamily, hospitality, industrial and mixed-use assets.

Claros Mortgage Trust became a publicly traded company in 2021. It is externally managed by Claros Mortgage Manager LLC, an affiliate of Mack Real Estate Group and its real estate investment businesses. The company’s strategy is centered on providing flexible financing to commercial property owners and generating income from a diversified portfolio of real estate-related investments.

Claros Mortgage Trust Q1 2025 Earnings Call Transcript

Key Takeaways

• Senior management flagged heightened uncertainty from U.S. tariff and foreign policy volatility, which has widened spreads and slowed the real estate recovery.
• By April 30, the company had realized over $600 million from five loan resolutions, improving liquidity, reducing leverage, and trimming land, office, and hospitality exposures.
• In Q1, CMTG reported a GAAP net loss of $0.56 per share and a distributable loss of $0.25 per share, with distributable earnings before realized losses of $0.08 and REO investments weighing on results due to hotel seasonality.
• The trust closed a $214 million financing facility to fund nonperforming loans through the REO process, planning to foreclose and convert at least two loans in Q2.
• As of March 31, CMTG held $136 million in total liquidity (cash and undrawn capacity) and will continue tactical liquidity management amid ongoing market volatility.

Presentation

[Operator]

Welcome to the Claros Mortgage 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 speaker's remarks, there will be a Q&A period. To ask a question on today's call, please press * followed by 1 on your telephone keypad. If you would like to remove your question, please press * followed by 2. I would now like to hand the call over to Anh Huynh, Vice President of Investor Relations for Claros Mortgage Trust. Please proceed.

[Anh Huynh, VP of Investor Relations at Claros Mortgage Trust]

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. We also have Priyanka Garg, Executive Vice President, who leads MREX 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.

[Anh Huynh, VP of Investor Relations at Claros Mortgage Trust]

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 meaning 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.

[Anh Huynh, VP of Investor Relations at Claros Mortgage Trust]

Any forward-looking statements made on this call represent 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 equivalent, please refer to the earnings supplement. I would now like to turn the call over to Richard.

[Richard Mack, CEO and Chairman at Claros Mortgage Trust]

Thank you, Anh, 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 that has rippled across the globe. 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.

[Richard Mack, CEO and Chairman at Claros Mortgage Trust]

We are seeing spreads widen 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.

[Richard Mack, CEO and Chairman at Claros Mortgage Trust]

Notwithstanding this difficult backdrop, I'm 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 watchlist loans. As of April 30, 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.

[Richard Mack, CEO and Chairman at Claros Mortgage Trust]

Second, we continued to reduce leverage. Third, we resolved two watchlist loans and reduced 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.

[Richard Mack, CEO and Chairman at Claros Mortgage Trust]

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 sponsor's experience as an owner, operator, and developer.

[Richard Mack, CEO and Chairman at Claros Mortgage Trust]

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?

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

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 watchlist 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.

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

For the first quarter of 2025, CMTG reported a GAAP net loss of $0.56 per share and distributable loss of $0.25 per share. Distributable earnings prior to realized losses were $0.08 per share. Earnings from REO investments contributed a distributable loss of $0.03 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 31, compared to $6.1 billion at December 31.

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

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 a $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 31, and as such, the transaction did not impact CMTG's first quarter held-for-investment portfolio UPB.

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

We also executed on the discounted payoff of a $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.

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

This loan was ultimately exposed to the office sector in that the sponsor's business plan is a large-scale ground-up office development. Subsequent to quarter-end, three additional loans were repaid, which in aggregate comprised $314 million of UPB. First, we received the full repayment of a $225 million loan collateralized by a hotel located in Savannah, Georgia.

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

Second, we executed a discounted payoff of an $88 million Houston office loan that was on the watchlist, resulting in repayment proceeds equal to 72% of UPB. Most recently, we resolved another watchlist loan, a small $886,000 loan that was the residual amount owed on a $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.

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

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 REO 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 on this facility during the second quarter.

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

Turning to liquidity, at March 31, 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.

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

I would now like to turn the call over to the operator.

[Operator]

Thank you. If you wish to ask a question, please press * followed by 1 on your telephone keypad now. If for any reason you want to remove your question from the queue, please press * followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Doug Harter from UBS. Your line is now open. Please go ahead.

[Douglas Harter, Equity Research Analyst at UBS]

Thanks. For the last two quarters, you've talked about your two large multifamily loans that you would expect to kind of near-term pay off 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?

[Priyanka Garg, EVP-Portfolio and Asset Management at Claros Mortgage Trust]

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

[Douglas Harter, Equity Research Analyst at UBS]

All right. Great. As you just think about if you could update us on your current thoughts around the Term Loan B and kind of your timeline and expectations on that.

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

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

[Douglas Harter, Equity Research Analyst at UBS]

Great. Thank you, Mike. Thank you, Priyanka.

[Operator]

Thank you. Our next question comes from Rick Shane from JPMorgan. Your line is now open. Please go ahead.

[Richard Shane, Analyst at JPMorgan]

Hey, guys. Thanks for taking my questions this morning. Really just sort of a strategic question. As we sit here today on, I guess it's May 8th, and we think about the path to resolution, 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 the way to optimize is just to move on as quickly?

[Richard Shane, Analyst at JPMorgan]

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?

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

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. It is very much facts and circumstances driven at the loan and asset level. 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 recoveries.

[Richard Shane, Analyst at JPMorgan]

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

[Richard Mack, CEO and Chairman at Claros Mortgage Trust]

Yeah, no, I'll just pipe in. That was exactly what I was going to say. I'm glad Mike hit it.

[Richard Shane, Analyst at JPMorgan]

Great. Really appreciate it, guys. Thank you very much.

[Operator]

Thank you. As a reminder, to ask a question, please press * followed by 1 on your telephone keypads. Our next question comes from Jade Rahmani from KBW. Your line is now open. Please go ahead.

[Jade Rahmani, Managing Director at KBW]

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 8K with Wells Fargo, reducing that facility's outstanding to $500 million. Just want to see 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?

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

Thanks, Jade. I'll take this one. 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 into 2027. Each repo facility is a little different, but I would say that the repo counterparties have been very constructive, very collaborative as we work through the environment.

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

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.

[Jade Rahmani, Managing Director at KBW]

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. Are you contemplating a facility that would look, in all intents and purposes, like the current facility, but perhaps at a higher rate? Are we looking at potentially a mix of debt restructuring that would include various other things? What do you think the all-in blended cost would be?

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

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 a 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. Too early to comment on specifics.

[Richard Mack, CEO and Chairman at Claros Mortgage Trust]

Mike, let me just add that I think.

[Jade Rahmani, Managing Director at KBW]

Go ahead.

[Richard Mack, CEO and Chairman at Claros Mortgage Trust]

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. I think there are actually quite a few different routes to take on this.

[Jade Rahmani, Managing Director at KBW]

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

[Operator]

We don't have any more.

[Priyanka Garg, EVP-Portfolio and Asset Management at Claros Mortgage Trust]

No, Jade, you can go ahead.

[Operator]

At the moment.

[Jade Rahmani, Managing Director at KBW]

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 in buckets ranging from projects that are light transition to projects that are a complete repositioning.

[Priyanka Garg, EVP-Portfolio and Asset Management at Claros Mortgage Trust]

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 perhaps less relevant. Also, we have so many other tools that we use routinely in our toolbox where we have additional credit support in the event of a lower debt yield, lower coverage, right? That is in the form of cash reserves, hard cash management, guarantees, etc.

[Priyanka Garg, EVP-Portfolio and Asset Management at Claros Mortgage Trust]

The first question is a little bit hard to answer just in a vacuum. In terms of how to bucket the portfolio, we obviously have a much more seasoned portfolio than was initially anticipated when we had originated these loans, right? Repayments have been slower. 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.

[Priyanka Garg, EVP-Portfolio and Asset Management at Claros Mortgage Trust]

We view that as a good thing in the sense that it's much easier to manage liquidity on the go forward future funding commitments, which have come down significantly. That was about $2 billion just a couple of years ago, and now we're down to just over $100 million of required equity over a two-year period. That also speaks to the fact that a lot of our construction assets are the easiest, best in class in their markets and easiest to refinance. There has been some natural runoff on that as well.

[Priyanka Garg, EVP-Portfolio and Asset Management at Claros Mortgage Trust]

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 see about just in the first quarter. We think 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 books. All of that is improving and moving in the right direction.

[Jade Rahmani, Managing Director at KBW]

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 55-60%. But if you could give a sense for total REO and liquidity implications.

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

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

[Priyanka Garg, EVP-Portfolio and Asset Management at Claros Mortgage Trust]

Sure. Okay. I'll start off here. I think, Jade, 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 current REO that we think we're going to monetize in the near term. Our mixed-use asset here in New York City, our business plan there had been to commercial condominiumize the different components, and we've gotten approvals to do all of that.

[Priyanka Garg, EVP-Portfolio and Asset Management at Claros Mortgage Trust]

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 and reduced REO exposure. 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.

[Priyanka Garg, EVP-Portfolio and Asset Management at Claros Mortgage Trust]

If we think that's the right thing to do, we're going to do it. Just as a data point on those five REO assets that we've identified, potential REO, four of them have been in the—that's been the strategy for the better part of a year as we've been getting our ducks in a row to do that. 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 6 percentage points from the trough.

[Priyanka Garg, EVP-Portfolio and Asset Management at Claros Mortgage Trust]

It just goes to show that 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 create real value. Mike, do you want to jump in on the liquidity point?

[Michael McGillis, President, CFO, and Director at Claros Mortgage Trust]

Sure. Jade, with respect to liquidity, when we move these assets onto the new financing facility for NPLs and REOs, the advance rate that we currently have on those facilities is consistent with what we'll need when we foreclose on the assets. There is going to be no liquidity outflow on that initial asset pool when we foreclose.

[Jade Rahmani, Managing Director at KBW]

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 ISTAR did. I was wondering if you might contemplate, given the development background that Mack has, splitting the company into 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 the greatest flexibility and potential upside.

[Jade Rahmani, Managing Director at KBW]

Then separating that from a mortgage REIT that would be generating more regular way income and focused on the performing part of the portfolio, and that would be positioned to eventually take advantage of the current environment and grow. You could bring in partners to do this. Just curious your thoughts on that.

[Richard Mack, CEO and Chairman at Claros Mortgage Trust]

Jade, that's an excellent idea and certainly something that 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. We are going to continue to evaluate all strategies, including that. Right now, we're trying to really think about REO as a medium-term opportunity to improve performance of the assets before liquidating them. I think it is good to consider other ways to think about REO as we bring them on and we reposition them.

[Jade Rahmani, Managing Director at KBW]

Thank you.

[Operator]

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

[Richard Mack, CEO and Chairman at Claros Mortgage Trust]

Yep. Thank you all again for joining. Let me just make some observations that maybe we're all feeling, as 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. The REO assets that we are taking back, we're doing, I think, quite a good job in improving performance.

[Richard Mack, CEO and Chairman at Claros Mortgage Trust]

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.

[Richard Mack, CEO and Chairman at Claros Mortgage Trust]

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. That is what we're doing. Hopefully, the volatility will abate and allow the recovery in real estate that we've been experiencing over the last six months to a year to continue. I thank you all for joining, and I look forward to speaking to you again on the next earnings call.

[Operator]

This concludes today's call. Thank you for joining us. You may now disconnect your line.

Participants

Executives

• Anh Huynh, VP of Investor Relations
• Richard Mack, CEO and Chairman
• Michael McGillis, President, CFO, and Director
• Priyanka Garg, EVP-Portfolio and Asset Management

Analysts

• Richard Shane, Analyst at JPMorgan
• Jade Rahmani, Managing Director at KBW
• Douglas Harter, Equity Research Analyst at UBS