Q1 2025 Claros Mortgage Trust Inc Earnings Call
Thank you for your patience as we work on preparations for the Cosmos gets trust incorporated first quarter 2025 earnings call. We appreciate your attendance today, we'll be starting in approximately one minute.
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Yes.
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Back: Welcome to the closed mortgage trusts first quarter two 175 earnings conference call. My name is back and I'll be your conference facilitator today.
All participants will be in a listen only mode.
Back: After the Speakers' remarks, there will be a question and answer period to ask a question on todays call. Please press star followed by one on your telephone keypad. If you would like to remove your question. Please press star followed by T.
Speaker Change: I would now like to hand, the call over to Ana Nguyen Vice President of Investor Relations of course mortgage mortgage Trust. Please proceed.
Speaker Change: Thank you I'm joined by Richard Mack, Chief Executive Officer, and Chairman of Claris Mortgage Trust and Mike Mcmullen, President Chief Financial Officer, and director of Claris Mortgage Trust.
Ana Nguyen: We also have Priyanka garg executive Vice President, who leads and portfolio and asset management.
Speaker Change: Prior to this call we distributed C. M T G of the earnings release and supplement.
Speaker Change: We encourage you to reference these documents in conjunction with the information presented on today's call.
Speaker Change: If you have any questions. Please contact me.
Speaker Change: 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.
Speaker Change: Actual results may differ materially from those indicated by these forward looking statements.
Speaker Change: As a result of various important factors, including those discussed in our other filings with the SEC.
Speaker Change: Any forward looking statements made on this call represents our view only as of today and we undertake no obligation to update them.
Speaker Change: 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.
Speaker Change: Reconciliations of non-GAAP measures to their nearest GAAP equivalent please refer to the earnings supplement.
Richard: I'd now like to turn the call over to Richard.
Richard: Thank you all and thank you everyone for joining us this morning for <unk> first quarter earnings call.
Richard: Reflecting our recent U S tariffs and foreign policy volatility, there's no heightened uncertainties as to outcomes.
Richard: Rippled across the globe and while it's still unclear what the long term implications will be for the U S economy, the global economy.
Richard: Real estate broadly.
Richard: Observing impacts on the real estate capital markets.
Richard: You're seeing spreads widen slightly and some institutional participants pause before transacting as assessing ascribing value to rich has become exceptionally difficult and will likely remain so until tariffs and other economic policies are settled.
Richard: All of this combined with the ongoing higher rate environment means that there are continuing headwinds the broader real estate recovery.
Richard: Notwithstanding this difficult backdrop I'm pleased to report that she MTGE has made progress towards achieving the goals we outlined on our last earnings call.
Richard: Enhancing liquidity, reducing leverage and optimizing the outcomes on our watch list loans.
Richard: As of April 30, we have so we realized five loans and have received $607 million in proceeds from repayments and resolutions.
Richard: These transactions we accomplished the following.
Richard: We improved our liquidity position secondly continue to reduce leverage.
Richard: Third we resolved to watch list loans and reduced <unk> land and office exposure.
Speaker Change: Which are two property types that have experienced challenges in recent years and had been difficult to monetize.
Speaker Change: 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.
Speaker Change: Further we have made progress our multifamily Oreo strategy described last quarter.
Speaker Change: During the first quarter, we closed on a $214 million facility that will allow us to finance. These nonperforming loans through the RVO 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.
Speaker Change: Our sponsors experience as an owner operator and developer.
Speaker Change: As we look to the remainder of the year and the strategic priorities, we set out to accomplish our work continues every day.
Speaker Change: We also recognize the economic and political climate and its potential impact on capital markets investor sentiment and our momentum in accomplishing these priorities.
Speaker Change: 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 Oreo, depending upon market conditions and our assessment of opportunity through our sponsors.
Speaker Change: <unk> as a value add owner and developer of real estate assets.
Speaker Change: I would now like to turn the call over to Mike and I. Thank you all for joining us today.
Speaker Change: Mike.
Mike: Thank you Richard we are highly focused on enhancing liquidity thoughtfully redeploying capital to more accretive uses such as reducing higher cost leverage and reducing levels of watch list loans and executing these priorities. We may consider strategies, such as loan sales discounted payoffs <unk> foreclosure.
Speaker Change: Among other actions.
Speaker Change: To achieve our objectives, our financial results and portfolio activity reflect our progress in the execution of these strategies.
Speaker Change: For the first quarter of 2025, <unk> reported a GAAP net loss of $50 <unk> per share and distributable loss of 25 per share.
Speaker Change: Distributable earnings prior to realized losses were <unk> <unk> per share.
Speaker Change: Earnings from our REO investments contributed a distributable loss of <unk> <unk> per share primarily due to the expected seasonality associated with the hotel portfolio.
Speaker Change: <unk> held for investment loan portfolio decreased to $5 9 billion at March 31, compared to $6 1 billion at December 31.
Speaker Change: The quarter over quarter decrease was primarily the result of the resolution that occurred during the quarter.
Speaker Change: During the first quarter, we completed the sale of $101 million senior loan collateralized by a hotel in San Diego, which was sold at par.
Speaker Change: The loan was classified as held for sale at December 31.
Speaker Change: As such the transaction did not impact <unk> first quarter held for investment portfolio.
Speaker Change: We also executed on the discounted pay off of 183 million dollar New York land at the 90% of par.
Speaker Change: While the discounted payoff impacted our first quarter financial results the transaction provided several benefits, including generating approximately $95 million of liquidity for CMT Chi. In addition, the discounted pay off reduced exposure to land in New York City.
Speaker Change: So mitigated capital markets risk associated with the repayment of this loan at maturity.
Speaker Change: This loan was ultimately exposed to the office sector and that the sponsors business plan is a large scale ground up office development.
Speaker Change: Subsequent to quarter end, three additional loans were repaid which in aggregate comprised $314 million of <unk>.
Speaker Change: First we received the full repayment of the $225 million loan collateralized by a hotel located in Savannah, Georgia.
Speaker Change: Second we executed a discounted payoff of an $88 million Houston office loan that was on the watch list, resulting in repayment proceeds equal to 72% of <unk>.
Speaker Change: <unk>.
Speaker Change: Most recently, we resolved and other watch list loans, a small $886000 that was the residual amount owed on our $125 million, while it was largely repaid in 2020.
Speaker Change: Turning to portfolio credit during the first quarter, we downgraded one loan the Texas office won't just mentioned two of five risk rating.
Speaker Change: As Richard mentioned, we recently closed on a $214 million facility that will enable us to finance nonperforming loans and hold the underlying collateral of these loans as our REO assets upon foreclosure.
Speaker Change: View the closing of this facility is an essential and positive step.
Speaker Change: Forward and executing our REO strategy can we expect to execute the foreclosure and conversion to RVO of at least two of the loans in this facility during the second quarter.
Speaker Change: Turning to liquidity.
Speaker Change: At March 31, we reported $136 million in total liquidity.
Speaker Change: Quiddity, which includes cash and approved and Undrawn credit capacity based on existing collateral.
Speaker Change: Richard mentioned, we are entering a period of heightened uncertainty and market volatility that could impact the real estate capital markets, but ultimately our timing and ability to execute in line with our expectations. We intend to remain pragmatic while proactive I would now like to turn the call over to the operator.
Speaker Change: Thank you.
Speaker Change: You wish to ask a question. Please press star followed by one on your telephone keypad now.
Speaker Change: Any reason you want to remove your question from Nicky. Please press star followed by <unk> when preparing to ask a question. Please ensure your device is amit it likely.
Speaker Change: Our first question comes from Doug Harter from UBS. Your line is now open. Please go ahead.
Speaker Change: Thanks.
Speaker Change: The last two quarters you've talked about.
Speaker Change: Your two large multifamily loans that you would expect to kind of near term pay off on.
Speaker Change: Just hoping you could give us an update on that and kind of.
What you what are your expectations of near term are for those payoffs.
Yes, Hi, Doug Good morning, Thanks for the question it's Priyanka.
Speaker Change: We are that is that still in process, we are still anticipating that being the outcome.
Speaker Change: Both of those have maturity is July 31st and August 1st So.
Speaker Change: Coming up and both are tracking well towards that but I will say just given the market volatility, particularly.
Speaker Change: <unk>.
Speaker Change: The West Coast loan loan number one on island and last we are.
Speaker Change: Potentially you're going to have to evaluate other options but.
Speaker Change: Like Mike said, we're going to be pragmatic, it's a very uncertain environment and well evaluate as we get more information.
Speaker Change: Okay, Great and then as you just think about.
Speaker Change: Could update us on your current thoughts around the term loan b.
Speaker Change: Of your timeline and expectations on that.
Doug Harter: Sure Doug.
Doug Harter: Well the term loan has a maturity in August of 2026. So it goes current in August of 2025.
Doug Harter: We are.
Doug Harter: Sort of evaluating a couple of options. There does that include both.
Doug Harter: Amend and extend.
Doug Harter: Of the existing term loan B, we would expect to make a.
Doug Harter: Meaningful principal pay down as part of that the other option is.
Doug Harter: Evaluating various private credit solutions.
Doug Harter: Which we think are becoming more attractive.
Doug Harter: The recent environment.
Speaker Change: Great. Thank you Mike Thank you Brian.
Speaker Change: Thank you.
Speaker Change: Question comes from Rick Shane from JP Morgan. Your line is now open. Please go ahead.
Rick Shane: Hey, guys. Thanks for taking my questions. This morning.
Rick Shane: Really just sort of a strategic question as we sit here today and I guess it may 8th.
Rick Shane: And we think about the path to resolution.
Speaker Change: Are you guys.
Speaker Change: Do you think that the.
Speaker Change: The opportunities to maximize NPV on resolution today have shifted more towards.
Speaker Change: A longer more.
Speaker Change: Managed process or are we still in a scenario, where first loss as best loss and it's.
Speaker Change: The way to optimize this just to move on as quickly and with that question.
Speaker Change: 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.
Speaker Change: Okay.
Speaker Change: Thanks, Rick Thanks for the question I'll start and I'll, let Richard and Priyanka.
Speaker Change: One is appropriate I think each one of these opportunities you've got to evaluate them on a case by case basis. So it's very much facts and circumstances driven at the at the loan and asset level.
Speaker Change:
Speaker Change: That's number one I think we have fairly good visibility and just additional.
Speaker Change: Realizations that should further improve our liquidity position over the course of the second quarter.
Speaker Change: And allow.
Speaker Change: Allow us to execute on.
Speaker Change: Asset level strategies.
Speaker Change: Propylene and maximize that recovers.
Speaker Change: I wasn't sure if anybody else that was going to pipe in on that.
Speaker Change: Yes.
Speaker Change: And that was exactly what I was going to say so.
Speaker Change: I'm glad my goodness.
Speaker Change: Great I really appreciate it guys. Thank you very much.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: A reminder to ask a question. Please press star followed by one on no telephone keypads.
Speaker Change: Our next question comes from Jade Rahmani from <unk>. Your line is now open. Please go ahead.
Jade Rahmani: 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 8-K with Wells Fargo.
Jade Rahmani: <unk> that facilities outstanding to $500 million.
Jade Rahmani: Just wanted to see.
Jade Rahmani: What what your repo lenders are looking for what they are saying and.
Jade Rahmani: Is the plan to really amortize down the repo balances.
Jade Rahmani: As you receive proceeds from working out loans in the portfolio.
Speaker Change: Thanks, Jay I'll take this one so yeah, we recently extended the Wells Fargo facility.
Speaker Change: Or another year with extension options out through 2028, we also recently extended the Goldman Sachs repo facility for another two years into 2027.
Speaker Change: So.
Speaker Change: Each repo facility is a little different.
Speaker Change: I would say that the repo counterparties have been very constructive very collaborative.
Speaker Change: As we work through the environment.
Speaker Change: The reduction in the facility size of the wells facility is really just a function of.
Speaker Change: Looking at what our real financing capacity needs are in the near term.
And sort of sizing that benno.
Speaker Change: At a level that is reflective of.
Speaker Change: <unk>.
Speaker Change: Whats appropriate in the current environment, where we're not originating a lot of wells.
Speaker Change: We will continue to evaluate capacity size and as we've done in the past.
Speaker Change: Capacity of decreased capacity based on.
Speaker Change: What we're seeing within our portfolio.
Speaker Change: Okay. When you say private credit regarding term loan.
Speaker Change: I mean, I'm not sure what that means it could mean any host of things Steve.
Speaker Change: Do you envision are you contemplating a facility that would look.
Speaker Change: And all intensive purposes like the current facility, but perhaps at a higher rate or are we looking at potentially a mix of.
Speaker Change: That restructuring that would include.
Speaker Change: Various other things and what do you think the all in blended.
Speaker Change: Cost would be.
Jade Rahmani: Too early to comment on that Jade I think what we're seeing is those costs start to get closer together.
Speaker Change: Youre talking about a unit tranche facility versus a syndicated debt offering.
Speaker Change: I think in terms of what that might look like it would probably look like.
Speaker Change: A new term loan.
Nancy: Nancy would probably greater.
Nancy: Operational flexibility.
Nancy: It would be the expectation, but too early to comment on specifics.
Mike: Mike Let me just.
Speaker Change: I think go ahead.
Mike: But.
Mike: Thanks, Jade, sorry, I think that the private market.
Mike: <unk> is showing as much opportunity and appetite right now for what were previously better secured securitized executions and so I think there are actually quite a few different.
Mike: Route to take on this.
Mike: Okay.
Mike: Yeah.
Mike: High level are there any other questions in the queue I could come back.
Mike: We don't have.
Mike: So at the moment.
Mike: Okay. Thanks, very much I was wondering if you could give some summary statistics.
Mike: For the overall portfolio, just so we know where things stand.
Mike: On occupancy.
Mike: Net yield perhaps.
Mike: And if you could just characterize the portfolio in buckets ranging from projects that are light transition to projects that are.
Mike: <unk>.
Mike: Repositioning.
Mike: Okay.
Mike: Yeah, Jade I'll take that it's priyanka. Thanks.
Speaker Change: I think we're obviously, it's a transitional portfolio. So some of those metrics are.
Speaker Change: Perhaps less relevant and also we have so many other tools that we used routinely in our toolbox, where we're have additional credit support.
Speaker Change: In the event of a lower debt lower coverage right. So that's in the form of cash reserves hard cash management guarantees et cetera. So.
Speaker Change: Yeah.
Speaker Change: Our first question is a little bit hard to answer just in a vacuum.
Speaker Change: In terms of how to bucket the portfolio.
Speaker Change: Obviously have a much more seasoned portfolio than was initially anticipated when we.
Speaker Change: We had originated these loans right some repayments and slower so 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 and we view that as a good thing in the sense that it's much easier to manage liquidity on a go forward future funding.
Speaker Change: Commitments, which have come down significantly that was about.
Speaker Change: $2 billion, just a couple of years ago, and now we're down to just over $100 million of required equity over two year period.
Speaker Change: And.
Speaker Change: Also that speaks to the fact that a lot of our construction assets are the easiest best in class in their markets and easiest to refinance and Theres been some natural run off on that as well. So I think as we sit here today, the heavy transitional and that ground up construction has really waned. It's much more a lot of we have a lot of multifamily exposure.
Speaker Change: <unk>, which is cash flowing we have a couple of assets that have just come out of construction and have their CFO just in the first quarter. So 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.
Speaker Change: The Bucks, we took a land loan off the books. So all of that is improving and moving in the right direction.
Speaker Change: Okay and then just this would be helpful from a liquidity perspective.
Speaker Change: What is the sum total of Oreo 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 the Oreo.
Speaker Change: Sure with the advance rate is on that it's probably 55% to 60%, but if you could give a sense for total Oreo and liquidity implications.
Speaker Change: Yep.
Speaker Change: Why don't you cover the total area.
Speaker Change: Liquidity implications.
Speaker Change: Sure Okay.
Jay: Start off here I think Jay that's a really good question.
Speaker Change: We're talking about that internally all the time is quite fluid as you might imagine because we do have.
Jay: Yes.
REO that we think we're going to monetize in the near term.
Jay: Mixed use asset here in New York City, our business plan there had been to condominium is commercial condominium is the different components and we are we've gotten approvals to do all of that it's in the process of being.
Jay: Recorded and that will result in us selling a majority of the office floors to a third party.
Jay: Which will result in a liquidity event and reduced Oreo exposure.
Jay: So I use that as an example to say there was just gonna be ins and outs and it's going to be very frequent.
Jay: On the multifamily assets you identified those are the ones that we think are 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. Our Yao with we think that's the right thing to do we're going to do it.
Jay: Just as a data point on the those.
Jay: Five Oreo assets that we've identified potential Oreo.
Jay: Four of them, we have had been in the.
Jay: That's been our strategy for the better part of the year.
Jay: We've been getting our ducks in a row, they do that and 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 in occupancy is up six percentage points from the trough. So it just goes to show that we're going to you know when we're going to get involved we're going to do it on assets, where we think our broader platform can really.
Jay: There are the appropriate experience and and create real value.
Jay: Yeah.
Mike: Mike do you want to jump in and also to the point.
Mike: Sure Jay with respect to liquidity when we move these assets onto the.
Mike: The new financing facility for Npls and <unk>.
Mike: We are.
Mike: The advance rate that we currently have on those facilities is consistent with what.
Mike: What will need when we foreclose on the asset so there's going to be no no liquidity outflow on that initial asset pool before close.
Mike: Okay. That's good to know.
Speaker Change: I guess this is a strategic question, but an idea just popped into my head been covering this space since 2009, I'm very familiar with what I started.
Speaker Change: And I was wondering if you might contemplate given the development background that Mac has.
Speaker Change: Splitting the company.
Speaker Change: Two a.
Speaker Change: A company that holds real estate development assets.
Speaker Change: And really has capital that its long term patient not looking for near term dividend.
Speaker Change: And would allow the greatest flexibility and potential upside.
Speaker Change: And then separating that from a mortgage REIT that would be generating more regular way income and focus on the performing part of the portfolio.
Speaker Change: And that would be positioned to eventually take advantage of the current environment.
Speaker Change: ROE and you could bring in partners to do this.
Speaker Change: So just curious your thoughts on that.
Speaker Change: Jay that's an excellent idea and certainly something that we.
Speaker Change: We've had to think about.
Speaker Change: Right now we don't have any plans to do that but it is something we have to consider as we look at.
Speaker Change: The opportunity.
Speaker Change: In front of us in terms of how much Oreo, we might want to own and reposition so we're going to continue to evaluate all strategies, including that.
Speaker Change: But right now we're.
Speaker Change: You're trying to really.
Speaker Change: Think about <unk> as a <unk>.
Speaker Change: Medium term opportunity to improve performance of the assets before liquidating them.
Speaker Change: But I think it is good to consider.
Speaker Change: Other ways to think about Oreo as we bring them on.
Speaker Change: And we reposition them.
Speaker Change: Thank you.
Speaker Change:
Speaker Change: Thank you.
Richard: We currently have no further questions. So I'll hand back to Richard for closing remarks.
Speaker Change: Yes.
Richard: Thank you all again for joining.
Speaker Change: Let me just make some observations that maybe.
Speaker Change: We are all feeling.
Speaker Change: Volatility in Washington from a policy perspective.
Speaker Change: It seems to be abating.
Speaker Change: But at the moment.
Speaker Change: Slowing down the recovery in real estate.
Speaker Change: Having said that fundamentals are still strong at the property level and the Oreo assets that we are taking back we're doing I think.
Speaker Change: Quite a good job in improving performance otherwise, we wouldn't be bringing them on balance sheet. If we didn't think we can do that.
Speaker Change: As stated in.
Speaker Change: 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.
Speaker Change: Help improve our liquidity that's going to be our key to continue to do what it takes to manage liquidity to delever and be ready for future liability maturities.
Speaker Change: And to get back on offense.
Speaker Change: So thats, what we are what we're doing and hopefully the volatility will abate and allow the recovery in real estate that we've been experiencing over the last.
Speaker Change: Six months to a year.
Speaker Change: Two to continue so I. Thank you all.
Speaker Change: For joining and look forward to speaking to you again on the next earnings call.
Speaker Change: Yeah.
Speaker Change: This concludes today's call. Thank you for joining US you may now disconnect your lines.