Third Quarter 2026 Earnings Conference Call - CLAROS MORTGAGE TRUST INC

Financial Performance:

• Reported a GAAP net loss of $0.10 per share and a distributable loss of $0.08 per share for Q3 2026; distributable loss excluding realized gains/losses was $0.05 per share.
• Completed $702 million in loan and REO resolutions during Q3 and through November 2, including $492 million in full repayments, $186 million in watchlist resolutions (prior to charge-offs), and $24 million in REO sales.
• Reduced total indebtedness by $2.9 billion since January 1, 2025, and deleveraged the balance sheet, bringing the net debt-to-equity ratio down to 1.5x (pro forma after post-quarter-end activities) from 2.0x in Q2.
• Holding $143 million in liquidity as of Q3 end ($134 million cash as of November 2); carrying value of watchlist loans stands at $1.1 billion (33% of unpaid principal balance in specific reserves).
• Book value per share is $8.49, comprised of $0.93 cash, $4.04 in performing loans (Risk-1/2/3), $1.99 in REO, $4.10 in watchlist loans (net of reserves), and offset by $3.47 in secured term loan principal.

Guidance and Future Outlook:

• Strategic priority remains resolving watchlist loans and repositioning REO assets for disposition, with a goal to delever the high-cost secured term loan and eventually reinstate dividends.
• Management expects modest losses in Q4 related to two binding purchase agreements (multifamily and office loans) totaling ~$10.4 million ($0.07/share), representing approximately 97% of current carrying values.
• Anticipates further deleveraging using proceeds from asset sales, though specific year-end watchlist reduction targets were declined due to market volatility.
• Expects to sell two NYC REO hotels by Q1 2027 and continue selling multifamily REO assets near carrying values; remaining unencumbered asset pool stands at $509 million.

Business Segments and Product Lines:

• Loan Portfolio: Reduced to 21 loans ($2.8 billion UPB) and 8 REO investments; 18 of 4 initial watchlist downgrades in the last two years have been resolved.
• Watchlist Loans: 70% of UPB is currently carried at 70% of UPB value; 80% recovery rate achieved historically on resolved loans (prior to charge-offs).
• REO Assets: Sold a Dallas multifamily property for $22.5 million (in line with carrying value); two NYC hotels under contract for $45 million (slight premium); Dallas mixed-use REO held for sale.
• Operating Performance: NYC REO hotel portfolio contributed $0.03/share to distributable earnings (up $0.01 YoY); multifamily REO NOI declined slightly due to selective capital investment and sales of higher-performing assets.

Market and Competitive Landscape:

• Macroeconomic environment characterized by "higher for longer" interest rates, persistent inflation management by the Federal Reserve, and a flux in buyer-seller equilibrium.
• Multifamily sector faces oversupply in specific Sunbelt markets and pressure on workforce housing due to affordability constraints and migration dynamics.
• Management notes that while national supply is undersupplied, specific Southeast and Southwest markets remain overbuilt; however, strong job growth in the Southwest may eventually drive housing demand.
• CMTG views its recent markdowns as a proactive measure reflecting current market clearing prices, creating a "ring-fenced" balance sheet relative to peers.

Risks and Challenges:

• Continued exposure to elevated interest rates which could compress asset values further, though management believes current carrying values are conservative and baked-in.
• Risk of further markdowns if capital markets dictate higher rates or if asset sales fail to meet market expectations.
• Workforce housing demand remains structurally challenged by income pressures and geopolitical fears (e.g., deportation concerns affecting labor supply).
• Potential for continued losses if watchlist loan resolutions require deeper discounts than anticipated reserves.

Management Commentary and Tone:

• Tone is confident and transparent, emphasizing "decisive actions" taken over seven quarters to de-risk the balance sheet.
• Management expresses strong conviction that the current stock price ($5.50-$6.00 range implied by market disconnect) does not reflect the $8.49 book value or the progress made.
• Reiterated commitment to "hard decisions" to clear the balance sheet and pivot back to originating investments once deleveraging is sufficient.
• Management highlighted that specific reserves and carrying values have already been adjusted for the higher rate environment, minimizing surprise shocks.

Analyst Questions and Answers:

• Capital Use (BTIG): Proceeds from two binding sales contracts will primarily be used for further deleveraging (paying down the high-cost term loan) rather than new investments in the near term.
• NII and Earnings Inflection (BTIG): Management noted that eliminating non-accrual loan drag and associated financing costs should drive earnings toward break-even core operating performance; term loan interest expense is currently ~$0.10/share/quarter.
• Multifamily Risks (BTIG): Early identification of distressed assets allowed CMTG to ring-fence risk; remaining multifamily exposure in Risk-1/2/3 is minimal and viewed as fully repayable.
• Watchlist Reduction Targets (KBW): No specific quantitative target provided for year-end/early 2027 due to market uncertainty; focus remains on meeting market clearing prices and making accretive decisions.
• Reserve Adequacy (Citizens Capital): Historical 80% recovery rates vs. current 33% specific reserves; management emphasizes UPB-based metrics over carrying value metrics as carrying values fluctuate with new info.
• REO Hotel Readthrough (UBS): Management expects remaining REO hotels to sell near carrying value; the two under contract offer the most upside to buyers.

Other Key Points:

• Two binding purchase agreements signed in October for multifamily and unencumbered office loans, expected to close with minimal losses due to prior markdowns.
• Unencumbered asset pool ($509 million) provides significant financial flexibility to support capital allocation and deleveraging.
• The company has successfully resolved 33 loans ($3.8 billion UPB) since Jan 2025, including 18 watchlist loans resolved at ~80% of par.
• Specific CECL reserves remain at $516 million (33% of UPB), consistent with Q2, reflecting a conservative stance against the higher rate environment.