Claros Mortgage Trust Q2 Earnings Call Highlights

Key Points

• Claros Mortgage Trust reported a difficult second quarter, with a GAAP net loss of $1.81 per share and a distributable loss of $0.63 per share, while book value fell to $8.58 per share after additional loan reserves and REO write-downs.
• The company completed or announced $482 million of loan and REO resolutions through July, reducing watchlist exposure to $1.1 billion from $2.7 billion at the end of 2024. Proceeds helped increase liquidity to $168 million and reduce pro forma net debt-to-equity to 1.7 times.
• Management is prioritizing further asset resolutions, REO sales and debt repayment before restarting lending, potentially beginning new originations in late 2026 or early 2027. The timing remains dependent on market conditions and successful asset monetizations.

Claros Mortgage Trust NYSE: CMTG reported a second-quarter net loss as it continued to reduce watchlist exposure, sell or resolve loans and real estate-owned assets, and deleverage its balance sheet in preparation for eventually resuming new loan originations.

The commercial mortgage REIT recorded a GAAP net loss of $1.81 per share for the second quarter of 2026 and a distributable loss of $0.63 per share. Before realized gains and losses, distributable loss was $0.07 per share, President and Chief Financial Officer Mike McGillis said during the company’s earnings call.

Chief Executive Officer and Chairman Richard Mack described the period as “continued progress, albeit painful progress” toward returning to lending on transitional real estate. He said elevated interest rates, above-target inflation and geopolitical developments have contributed to financial-market volatility, though commercial real estate fundamentals have generally improved amid limited new construction, capital seeking deployment and improving transaction activity.

Resolutions Reduce Watchlist Exposure

During the second quarter and through July, Claros completed $482 million of loan and REO resolutions, including $223 million of regular-way loan repayments. The proceeds were used to reduce leverage by $346 million, while liquidity rose to $168 million as of July 24 from $116 million on May 5.

Since the start of the second quarter, the company resolved five loans totaling $435 million of unpaid principal balance before principal charge-offs. Three of those were watchlist loans totaling $212 million. Year to date, Claros has resolved 10 loans totaling $1 billion of UPB, including seven watchlist loans with $647 million of UPB.

Watchlist loans have declined from $2.7 billion at the end of 2024 to $1.7 billion at the end of 2025 and $1.1 billion following the July resolutions, McGillis said. The portfolio now includes 23 loans totaling $3.1 billion of UPB and nine REO assets with a combined carrying value of $724 million.

• Claros foreclosed on a $25 million, risk-rated 5 multifamily loan in the Dallas metropolitan area.
• The company sold a Dallas multifamily REO asset for approximately $47 million of gross proceeds, slightly above carrying value.
• After the quarter ended, Claros sold a San Francisco office watchlist loan for $70.7 million in gross proceeds. The loan had been on the watchlist since early 2022.
• The company resolved a Salt Lake City multifamily loan through a discounted payoff of $70 million, or 94% of its $75 million UPB.
• Two multifamily loans collateralized by properties in Seattle and Chicago repaid in full, totaling $223 million of UPB.

Reserves and Asset Marks Pressure Book Value

Claros reported book value of $8.58 per share at June 30, a decline that Mack said was primarily attributable to nine loan and REO positions. The company took additional reserves and asset write-downs as lender-driven sales processes provided updated market pricing for certain office and Sun Belt multifamily positions.

Three loans with combined UPB of $372 million were downgraded from risk rating 4 to risk rating 5, primarily because of price discovery from sales processes. Claros recorded $109 million, or $0.75 per share, in specific CECL provisions on those loans. A fourth, $75 million Utah multifamily loan was also downgraded to risk rating 5 after the discounted payoff was negotiated.

The company additionally increased reserves on three previously risk-rated 5 loans, taking $74 million, or $0.51 per share, in further specific CECL provisions. Its specific CECL reserve stood at $517 million at quarter-end, equal to 32% of related UPB. Claros’ general CECL reserve was approximately $50 million, with the reserve rising to 2.9% of UPB on loans subject to the general reserve from 2.3% in the prior quarter.

Claros also reclassified a mixed-use REO asset and a multifamily REO asset as held for sale, recognizing a $30 million loss, or $0.21 per share, upon reclassification. McGillis said the company expects to transact at the revised carrying values in coming months.

Market Volatility Shapes Sale Strategy

Executive Vice President Priyanka Garg said prospective buyers for assets requiring substantial operational work have largely included local general partners partnering with limited-partner capital from family offices and private investors. She said the company has seen less activity from private-equity and hedge-fund buyers.

While Claros has seen deep buyer interest in some processes, with Mack saying bid lists can include as many as 20 parties, price outcomes have been volatile. Garg said investors’ return thresholds have increased amid rate volatility and a wider range of investment options for limited partners.

“We’re meeting the market,” Garg said, adding that the company believes its reported book value reflects levels it can achieve.

Mack said that when bids meet the company’s view of value, Claros intends to transact. When bids are viewed as unusually low, the company may take a CECL reserve, seek to add value to the asset and return to the market later.

Deleveraging and Path to New Originations

Net debt to equity rose to 2.0 times at June 30 from 1.7 times at March 31, primarily because reserve additions and REO held-for-sale losses reduced book value. However, following July resolutions and $299 million of additional financing repayments, pro forma net debt to equity declined to 1.7 times.

Liquidity totaled $103 million at quarter-end, including $90 million of cash. Claros also had $509 million of unencumbered loan UPB and REO carrying value, and McGillis said asset sales in process could generate about $140 million of additional liquidity.

Management said it wants to further reduce watchlist assets, monetize REO positions and repay both asset-level and corporate term financing before evaluating capital allocation alternatives such as new originations, additional deleveraging, REO investments and share repurchases. McGillis said the company expects it could be in a position to begin redeploying capital into new originations in the latter part of 2026 or early 2027, though the timing depends on actions it does not fully control.

Mack said the company has “largely turned the corner” but acknowledged that returning to a largely performing portfolio, resuming a dividend and narrowing the gap between book value and the stock price will take time.

About Claros Mortgage Trust (NYSE:CMTG)

Claros Mortgage Trust is a specialty finance company structured as a real estate investment trust that acquires and manages a portfolio of newly originated, conventional residential mortgage loans guaranteed or insured by U.S. government‐sponsored enterprises. The company concentrates on Agency collateral, including loans backed by Ginnie Mae, Fannie Mae and Freddie Mac, aiming to generate current income while preserving capital through high‐quality, credit‐enhanced assets.

Under an external management agreement with Claros Mortgage Capital Advisors LLC, the firm leverages a seasoned team to source, underwrite and service mortgage assets.

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