Third Quarter 2026 Earnings Conference Call - CLAROS MORTGAGE TRUST INC

Explicit Guidance:

• Financial Metrics: No specific numerical guidance for future revenue, earnings, EPS, margins, capex, or cash flow provided.
• Loss Expectations: Expecting incremental combined losses of approximately $10.4 million (approx. 7 cents per share) in the fourth quarter of 2026 related to the acceptance of discounts on two binding purchase and sale agreements.
• Operating Performance: Expecting multifamily REO NOI to continue declining in the near term due to selective capital investment and sales of more profitable properties; New York City REO hotel portfolio expected to remain in line with prior quarter and improved year-over-year (currently contributing 3 cents per share of distributable earnings).
• Balance Sheet Targets: Target to achieve "better than a break-even core operating performance level" as an interim step; medium-term objective to eliminate the $0.10 per share per quarter cash interest expense burden associated with the secured term loan.

Business-Segment Outlook:

• Watch List & Portfolio Resolution: Continued focus on resolving watch list loans and turning over the portfolio; 21 loans and 8 REO investments remain active. Two binding agreements exist to sell a risk-rated five multifamily loan and an unencumbered office loan for $311 million (approx. 97% of carrying value).
• Timing: Expected closing dates for the above two loans are near-term (post-Q3 2026). The sale of two NYC REO hotels is expected to close by the first quarter of 2027.
• Asset Mix: Portfolio carrying value reduced to $2.3 billion (UPB $2.8 billion) for loans and $701 million for REO; specific CECL reserves at 33% of UPB, though historical resolutions averaged 80% of UPB.
• REO Strategy: Multifamily and mixed-use REO assets are being positioned for sale in the near to medium term; NYC land asset being developed with a recommended business plan for eventual sale; remaining hotel assets expected to monetize at or above carrying value.

Market and Competitive Outlook:

• Real Estate Capital Markets: Anticipates a continued challenging environment with an equilibrium between buyers and sellers remaining in flux due to a "higher for longer" rate environment; prices and market clearing levels remain elevated.
• Multifamily Sector: Identifies a supply/demand disconnect; while national undersupply exists, specific Sunbelt markets (Southeast/Southwest) remain overbuilt with elevated inventory.
• Rental Market Dynamics: Workforce housing facing pressure from day-to-day household income constraints and inflation; potential demand relief anticipated if election-related fears regarding deportations subside, potentially driving job creation and migration.
• Investment Opportunities: Management views the current environment as creating an "increasingly attractive investment environment over time" for capital deployment once balance sheet deleveraging is complete.

Macro / Industry Outlook:

• Interest Rates: Management operates under the assumption of a "higher for longer" interest rate environment; acknowledges that further rate increases could necessitate additional asset markdowns, but believes current marks are conservative given the 33% specific reserves.
• Inflation & Economy: Federal Reserve monetary policy is marshaled to manage inflationary pressures; economy described as "resilient" with strong job creation, particularly in the Southwest, supporting future industrial and housing demand.
• Credit Environment: Expectations of continued elevated refinancing challenges for floating-rate multifamily loans with low debt service coverage ratios in the coming 1–2 years, though CMTG claims this risk has been "ring-fenced" by pre-identifying at-risk loans and moving them to the watch list.

Strategic Initiatives:

• Deleveraging: Priority to continue using proceeds from loan and REO resolutions to pay down the secured term loan (highest cost of capital) and reduce net debt-to-equity ratio (currently 1.5 times pro forma).
• Capital Allocation: Deleveraging is viewed as a prerequisite to pivoting back to "accretive utilization of available capital," specifically originating new investments and reinstating the dividend.
• Asset Disposition: Aggressive execution on lender-driven price discovery processes on $860 million (previously) + $127 million (new) of assets; aiming to resolve remaining REO and watch list exposures.
• Liquidity Management: Unencumbered asset pool of $509 million (loan UPB and REO) serving as a source of financial flexibility to support sales and deleveraging.

Risks and Headwinds to Outlook:

• Rate Sensitivity: Potential for further pressure on asset values and book value if interest rates rise significantly; carrying values may need to be marked down further if capital markets dictate.
• Resolution Uncertainty: No specific quantitative guidance on the exact level of watch list reduction by year-end or 2027 due to the "choppy" and uncertain environment; outcomes depend on buyer decisions and market-clearing prices.
• Market Pricing: Risk that market clearing prices for remaining assets could be lower than current carrying values, though management believes significant value is ring-fenced.
• Operational Drag: Continued drag on Net Interest Income (NII) from under-earning and non-accrual loans until resolutions are completed.

Management Tone on the Future:

• Confidence: "Steadfast" and confident in executing strategic priorities; believes the company is at the "light at the end of the tunnel."
• Undervaluation: Strong conviction that the disconnect between stock price and book value ($8.49/share) does not reflect the progress made, de-risking of the balance sheet, or transparency of the portfolio.
• Strategic Shift: Expresses readiness to move from a defensive posture (turnover, deleveraging) to an offensive posture (originations, dividends) once liquidity and leverage targets are met, though timing is contingent on market conditions.

Miscellaneous:

• Liquidity Position: Liquidity totaled $143 million at quarter end (as of Nov 2: $143M cash), with unfunded loan commitments of only $3 million.
• Book Value Composition: Breakdown provided as $0.93 (cash), $4.04 (performing loans), $1.99 (REO), and $4.10 (watch list loans) per share.
• Reserve Adequacy: Specific CECL reserve of $516 million (33% of UPB) is deemed appropriate given the proactive marking down of assets last quarter and the current rate environment.