Hello and welcome to Clara's Morgas Trust Second 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 question and answer period. If you would like to ask a question, please press star followed by one on your telephone keypads. If for any reason you would like to remove your question, please press star followed by two. I would now like to hand a call over to Anne Huynh, Vice President of Investor Relations for Claris Mortgage Trust. Please proceed.

Thank you. I'm joined by Richard Mack, Chief Executive Officer and Chairman of Claris Mortgage Trust. Mike McGillis, President, Chief Financial Officer and Director of Claris Mortgage Trust. We also have Priyanka Garg, Executive Vice President, who leads credit strategies for Mac Real Estate Group. 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. 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 meeting 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. Any forward-looking statements made on this call represents our views 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 equivalents, please refer to the earnings supplement. I would now like to turn the call over to Richard.

Thank you, Ann, and thank you all for joining us this morning for CMTG's second quarter earnings call. While the elevated rate environment remains a headwind for commercial real estate, we're encouraged to see signs of healing. Investor sentiment has meaningfully improved and transaction volumes have been steadily recovering. This backdrop has been constructive for CMTG and we have made notable progress in achieving our key objectives for the year. To quickly recap, at the start of 2025 we outlined three strategic priorities that we believe will deliver long-term shareholder value. Resolving watchlist loans, improving our liquidity and accretively redeploying capital for uses such as taking assets REO, reducing leverage, and potentially refinancing or extending our TLB. I'm pleased to say that we have made significant progress across all three priorities. The healing of the real estate capital markets and consequent increase in transaction volume has benefited CMTG. During the second quarter, we resolved eight loans totaling $873 million of UPB. This activity included four loans that were paid off by the borrower in full, representing $480 million of UPB, and the resolution of four watchlist loans, representing $393 million of UPB. In addition to these eight resolutions, during the quarter, we also resolved two additional watchlist loans collateralized by multi-family assets, representing $147 million of UPB. Thus far in the third quarter, this resolution momentum has continued, with three additional watchlist loan resolutions totaling $548 million of UPB, one through a discounted repayment and two through multi-family mortgage foreclosures. In aggregate, 2025 resolutions to date total $1.9 billion of UPB, consisting of $1.5 billion of loan resolutions and $305 million of foreclosures on multifamily properties. Accounting for these resolutions, CMTG's watch list is now down to 17 loans and $2.1 billion of UPB, a net decline of $758 million of UPB and seven loans from the first quarter end. This progress demonstrates the management team's focus on resolving watchlist loans for optimal outcomes across our stated priorities. We have been proactively asset managing our loans on a case-by-case basis, and if needed, working with borrowers who demonstrate both the financial wherewithal and the operational commitment to the underlying asset. In this regard, we have been and will continue to be proactive in exploring all options available to us as a lender, including loan sales, discounted payoffs, and foreclosures. All this progress has enabled us to achieve our second priority of enhancing our liquidity position. As of August 5th, we reported $323 million in total liquidity, representing a $221 million increase compared to our position at December 31. Mike will provide more color on this and the realizations I just discussed in his remarks. As I've noted in the past, we believe that one of our competitive advantages is our sponsor's experience as a value-add owner, operator, and developer of real estate assets. We believe this perspective has enabled us to evaluate opportunities within the existing portfolio, to foreclose on loans when we see an opportunity to enhance value, and ultimately recapture this value for our shareholders. For example, you may recall that in 2023, we foreclosed on a mixed-use New York City building with office retail and signage components in Times Square. I'm pleased to share that during the second quarter we completed the commercial condomization of the building and subsequently we've completed the sale of five office floors which generated 29 million in gross proceeds. We believe that the commercial condominium strategy will maximize recovery of our original investment and is a strong example of how our sponsor's deep real estate experience positions us well to create value. We also previously shared our plans to pursue foreclosure on a number of cash-flowing multi-family assets. Once again, we believe we can significantly optimize recovery values by taking over under-managed assets, repositioning them to improve cash flows in order to enhance asset value, and sell the assets in a strengthening supply-demand environment. As mentioned, we recently completed four mortgage foreclosures, two during the second quarter, and two subsequent to quarter end. We're optimistic about our approach to these multifamily REO assets and anticipate being in a position to monetize the first of these assets in the coming quarters. I would now like to turn the call over to Mike.

Thank you, Richard. For the second quarter of 2025, CMTG reported a gap net loss of $1.30 per share and a distributable loss of $0.77 per share. Distributable earnings prior to realized losses were $0.10 per share. Earnings from REO investments contributed $0.01 per share to distributable earnings net of financing costs. CMTGs held for investment loan portfolio decreased to $5 billion at June 30th compared to $5.9 billion at March 31st. The quarter-over-quarter decrease was primarily the result of loan resolutions that occurred. Of the eight full loan realizations totaling $873 million of UPB that Richard mentioned, four loans totaling $480 million were regular way full repayments, two loans totaling $304 million were through loan sales, and two loans totaling $89 million were negotiated discount. We also received $25 million, partialing in total repayment, $73 million. As mentioned on our first quarter call, we received the discounted payoff of an $88 million Texas office loan that was previously a watch list loan. The realization of this loan resulted in proceeds equal to 73% of UPB and allowed us to resolve a watch list loan. We also received the discounted payoff of a sub-$1 million residual. Moving on to the two loan sales, which were at a weighted average recovery at 67% of UPB. The first loan was the sale of a California condo loan. The loan was previously classified as held for sale and non-accrual at our carrying value of $146 million at March 31st, which reflected a previously recorded $78 million loss on UPB. As this loan was unencumbered, the $146 million of sale proceeds received with a primary driver, the second loan was an $80 million loan collateralized by a previously four-rated Southern California hospitality loan originated in 2018, 70%. Given the sponsor's challenges, we actively resolve and reallocate capital to Not only have we remained proactive in pursuing resolutions, but we've also taken a disciplined approach, balancing effectuating loan resolutions, deleveraging the balance sheet, and generating liquidity. We believe this discipline is reflected in our results. As Richard mentioned, on a year-to-date basis, we had a total of $1.9 billion of UPB in loan resolutions consisting of $1.55 billion of loan repayments and sales and $305 million of multifamily property. On a blended basis, we achieved an 88% recovery. We have reduced our watchlist loans by $776 million of UPB, now down to $2.1 billion since year-end 2024. Turning to portfolio credit, while we have made meaningful progress in resolving loans and reducing our watch list we continue to experience negative credit migration in the portfolio during the quarter we moved four loans from a four risk rating to a five risk rating the first is a 402 million loan collateralized by multi-family property located in southern california the borrower recently initiated a sales process however the sale of the property did not materialize which was a key factor behind the downgrade we are currently evaluating all options available to us to pursue our remedies as a lender the second and third loans totaling 212 million of upb are both collateralized by multi-family properties located in dallas texas after evaluating the borrower's financial wherewithal and operational commitment to the asset, we determined that it would be prudent to foreclose on these loans in order to reposition these assets and improve operating cash flow under our sponsor's management, similar to the four assets that Richard mentioned. The fourth loan downgrade was resolved last week at our carrying value. As disclosed at year-end 2024 we entered into a contingent discounted payoff arrangement with a borrower on a 390 million dollar loan collateralized by a multi-family property in new york city the borrower is able to perform in accordance with the modification agreement and completed the discounted payoff at 90 percent of upb this transaction resulted in additional liquidity of 107 million dollars which will be redeployed into more. In addition, during the quarter, we also downgraded a $71 million office loan located in Seattle. The loan is in good standing and the borrower is performing under its guarantee obligations. However, there is a pending maturity in the performance that the asset is tracking below our expectation. Important to note that we have seven offices, $34 million and, respectively, $0.1 billion, 2% of the loan portion, $2.8 billion. The underlying assets for $19 million will aggressively reduce our indebtedness by $652 million. The deleveraging includes $188 million of incremental deleveraging, which reduced our net debt.

If you wish to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you want to remove your question, please press star 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.

Thanks and good morning. Just wanted to make sure that the liquidity number you gave, does that already factor in the discounted payoff of the New York City multifamily?

Yeah, the $323 million amount reflects the liquidity generated by the New York Multifamily Loan in July.

Great. And then clearly success in generating payoffs and liquidity in the first half. What is your outlook for continued resolutions payoffs in the second half and kind of the amount of liquidity that those payoffs might generate?

It's Priyanka. Hi, Doug. I'll jump in here. We look at capital markets are healing. We're seeing a lot more activity. So I think we think that there will be additional payoffs between now and the end of the year. That said, we have been obviously using all the tools in our toolkit up to this point to generate liquidity and resolve those watch list loans. So it's a large larger number because of that, but that's what we said we would do to enhance shareholder value. And you can see we've, you know, unlocked significant equity given the low leverage at which we are operating. And so I think going forward, we're going to be relying more on the regular way payoffs from our borrowers, absent some unique situations that come along.

You know, and then I guess what, you know, as you look at that liquidity, you know, what are What are the signposts you're looking for to maybe start deploying that liquidity, whether that be, you know, into, you know, further, you know, debt reduction of the term loan, whether, you know, would you consider stock buyback at current valuations, you know, kind of how are you thinking about, you know, using that liquidity?

Sure, Doug. Thanks for the question. I think, as we stated, I think we'll continue to look to deleverage the balance sheet, although we think the stock price is attractive and it's an attractive buy opportunity. You know, there's other considerations that need to think through with respect to that. And, you know, the other thing that we've made significant progress on the liquidity front in the last couple of years is really significantly bringing down our unfunded loan commitments. And, you know, really that is, we expect that to be a much less significant, call it, use of cash going forward, given that the net future funding obligations are now down to about $123 million net of existing financing on those. And And the majority of that is good news money associated with leasing activity. So I think the other use is we really want to get comfortable that we can either get replacement financing done on our term loan, extend it. A combination of those things, as those occur, may re-evaluate pivoting.

Great. Appreciate those answers.

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

Terrific. Thanks for taking my questions this morning. I'd like to focus on the REO, and some of this may be redundant, but there's just so many moving parts. I just want to make sure we have this all right. End of the quarter with about $525 million of REO foreclosed on another call at $235. five so as of today reo balance would be 650 to 660 is that correct on the balance sheet um yes that's correct okay got it um so the six assets that you show um for each one of them you outline a strategy pursuing asset sale pursuing unit sales improving the operational performance for eventual asset sale. Can we just go through one by one the six assets and give some rough timeline in terms of how long you think it will take to play out?

Is it, you know, again, I realize this is a tough exercise, but is it two quarters for the hotel portfolio six quarters for multifamily in dallas if you can just help us understand how this is going to go through um over the next call it 18 to 24 months yeah sure doug sorry ruck happy to happy to do that um so on you know as you said it is tough to pinpoint time frames it is obviously dependent on a number of external factors and i'll start with the hotel portfolio which You know, underlying performance has been really excellent. And TTM through June 30th is at peak during our ownership period. We have much higher EBITDA than last year, higher ADR. Everything's tracking in the right direction. I mean, just to put numbers on it, EBITDA is 16% higher than it was last year for the second quarter. And the balance of the year is looking very, very strong in New York City in terms of compression. Historically, third and fourth quarters are much stronger in New York. So I think we – and we refinance the portfolio, which gives us time to execute a sale. We are holding it for sale. We anticipate selling the assets, but we want to make sure that we're getting appropriate value. and so we're going to take our time doing that, but that does, you know, it is held for sale, so we are targeting to do that over the next couple of quarters. It is absolutely not a long-term hold, and we think we've done a really good job demonstrating value there in terms of increasing EBITDA. In terms of the mixed-use property, I'm sure saw, but in case you missed it, we have executed our commercial condominiumization strategy. We've already sold five of the nine office floors we have two more that are under contract so that those should be near term um sales and then the balance of the majority of the balance of the value is in the retail and signage components and we are marketing those now and we will you know ultimately determine if we think the bids that come in are we're better off um holding them or or benefiting from the cash yield that's coming off of those components, because it is 100% leased, or if we're better off selling and then redeploying that capital and optimizing the balance sheet. In terms of the multifamily, the first two, Arizona and Nevada, since we foreclosed, because we foreclosed several months ago, we have seen higher values come in unsolicited in terms of offers, just the value created in just foreclosing and some of the really, really easy low-hanging fruit we executed on there. And so we think those could be very near-term resolutions over the next couple of quarters. We have seen improvement in operations. We've seen improvement in each of those markets. So we're optimistic about the Arizona and Nevada assets. The Dallas assets are very fresh foreclosures. and there is we need to do the same amount of work there before we can really talk about timing as we've done in the other two terrific i i really appreciate you uh it does it's it's a very thoughtful answer and i really appreciate it thank you for the question thank you our next question comes from john nicodemus from btig your line is now open please go ahead hello and good morning everyone somewhat along the lines of one of doug's questions

i want to look back to the start of the year where you mentioned transactions underway at the time that could lead to two billion dollars of gross proceeds now that we're a bit more than halfway through the year we've seen that 1.9 billion dollars of loans resolved how should we be thinking about that initial two billion dollar number has that changed that gone in line with your expectations, and how are you viewing that playing out throughout the rest of 2025? Thank you.

Thank you. This is Mike. I'll take a shot, and Priyanka can add on. I think based on what we see coming down the pike, which Priyanka touched on a little bit, I think we're tracking to exceed that target. All these resolution activities are good just because churn of the portfolio, generation of liquidity in line with our state of that $2 billion target.

Yeah, I agree with all that and have nothing to add. I mean, we're using all the tools in the toolkit to make sure that we're achieving the goal of turning over the portfolio. And I think we've gotten through a lot of it, but there will be some more between now and year end.

Great. Thank you so much, Mike and Priyanka. Very helpful. And then following Rick's question about the REO. Just wanted to go a little into that. For the two recently foreclosed Texas assets, I know it's still early days. What sort of, you know, CapEx operating improvement needs are you seeing at those properties? Just curious sort of what that whole process is going to look like before, you know, they're in a more stable state the way the Arizona and Nevada ones are. Thank you.

Yeah, I really appreciate that question, John, because I think it goes back to demonstrating the sponsor's ability to really step in here. We have been really pleasantly surprised at just the low-hanging fruit. I mean, it's not a lot that needs to be done to really reposition the asset in these markets. They need to be, you know, for example, they need to be rebranded, and you need to take the prior sponsor's name off the buildings, and you need to make sure, you know, so it's a consumer product at the end of the day, So you need to make sure that what people are saying online and the reviews match the product that we want to deliver. But then beyond that, there's a lot of just low-hanging fruit around landscaping and curb appeal and, you know, very, very easy things to execute. And I think one of the other things that we've been surprised by is we strongly believe in, you know, unit renovations and upgrading units, but only if there is the ROI there. And in some of these assets in Dallas, and they're wide-ranging, the economics don't make sense because it is catering to a target market that really appreciates the lower price point in a well-managed asset. So it's not a lot of capital, and we think we can make a big difference in the matter of just several quarters.

Thanks so much, Priyanka. That's all for me.

Thanks, Joan.

Thank you. our next question comes from jade romani from kbw your line is not open please go ahead thanks thanks very much um i might be wrong but it it does sound like the outlook for resolutions in the second half of the year is a bit muted i'm not sure if you agree with that but that is a little bit at odds with uh the very strong transaction environment we're seeing you know, the CRE brokers report, as well as, you know, the select commercial mortgage REITs that are robustly originating loans right now. So what do you think is driving that? Is it the stories of each of the assets or something else?

Yeah. Hi, Jade. It's Priyanka. I'll take that one. So I think, one, I would just say we sort of accelerated a lot of that activity. we saw significant turnover in the book year to date on a percentage basis, much higher than our peers and what a lot of other people have seen. So it's a timing question. And we were very focused on encouraging that activity to happen more quickly. We now, I think, can be more patient around regular way repayments. And we have a number of loans where our sponsors are under term sheet and working on refinancings, I just don't control those outcomes. So I think we're a little more hesitant to provide forward looking guidance on that. But that said, completely agree with the sentiment out there in terms of transaction volume and ability, you know, strength of the capital markets and sponsors' abilities to refinance us out. We just, we don't control those outcomes. So we're just being, you know, thoughtful in our response to those questions.

Okay, that's great. Just on the July New York multifamily, I'm not sure if you said this, there's lots of conference calls at this time, but do you know what the discounted payoff was, if you could give that amount?

The one that happened in July? Yeah, it was $0.90 of par, so $3.90 was the loan amount, $3.50 was the discounted payoff number. Okay, is that the which was just to be clear that was sorry jade i don't mean to interrupt you i just want to make clear that that was already embedded in our book value as of year end that that loss okay that's good to know are there any other uh expected losses in the third quarter uh that you know of right now no everything that we we know of we have reflected in our in our numbers at this point Okay.

And then could Mike give an update on the term loan refi, how that's going, what you're thinking there? Will you downsize the loan? Will you go with a private credit option or issue some other form of debt? And then just broadly speaking, the capital structure of the company, do you think issuing the preferred would be attractive because that would bolster you know total equity and therefore improve the financing options the leverage options because there'd be a much bigger equity base which would help cushion you know some of the transitions you're seeing in these assets like the reo and such thanks jade very thoughtful question um you know we're still working through the term loan process so i can't give a ton of specifics around it but we have a number of private credit the existing holders we expect to engage started

engaging with them expect that we will reduce the size of that financing given the amount of liquidity we have in our balance sheet and our stated objective of reducing leverage with respect to preferred. We have thought about it. I think that our best source of capital really continues to be continuing to resolve some of the watch list assets in the portfolio, generate liquidity from that that we can use to delever.

Obviously, I think a preferred, very helpful in the future, but we'd like to approach that from more of a position, which I think we're continuing to get there okay thanks very much thank you we currently have no further questions so i'll hand back to richard mack for closing remarks thank you uh i want to again thank thank everyone for the thoughtful questions i would summarize by saying uh we're ahead of our projections for our priorities and just restate them again which is resolving watchless loans improving liquidity and redeploying cash to higher and better uses, including stabilizing the business. But before I let everyone go, I want to follow many of our mortgage repairs by acknowledging the magnitude of loss created by the senseless tragedy, which occurred at 345 Park. We live in a very small New York City real estate community, and many of us here at CNTG have close ties with the victims and with the Blackstone and Rudin teams. I just want to say on behalf of everyone at CNTG that we mourn their passing, we send our condolences to their families and their colleagues, and just note that the world is a much poorer place for their loss. Thank you all, and we look forward to reconvening next quarter.

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