Welcome to the Claros Mortgage Trust Third Quarter 2025 Earnings Conference Call. My name is Elisa, and I will be your conference facilitator today. I would now like to hand the call over to Anh Huynh, Vice President of Investor Relations for Claros Mortgage Trust. Please proceed.

Thank you. I'm joined by Richard Mack, Chief Executive Officer and Chairman of Claros Mortgage Trust; and Mike McGillis, President, Chief Financial Officer and Director of Claros Mortgage Trust. We also have Priyanka Garg, Executive Vice President, who leads Credit Strategies for Mack 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 meaning 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 represent 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 reconciliation of non-GAAP measures to their nearest GAAP equivalent, please refer to the earnings supplement. I would now like to turn the call over to Richard.

Thank you, Anh, and thank you all for joining us this morning for CMTG's third quarter earnings call. As we approach the end of the year, we are encouraged by the continued signs of stabilization and recovery across the broader real estate market. Liquidity has slowly but steadily returned to the commercial real estate industry, supporting increased transaction volumes and tighter lending spreads. Recent and perhaps expected rate cuts by the Fed have improved the outlook even as investors consider the uncertainty surrounding the slowing economy. Collectively, these market dynamics have created a more constructive backdrop, enabling CMTG to continue executing on its strategic priorities for the year, in particular, resolving watch list loans, enhancing liquidity, and delevering the portfolio. At the beginning of the year, we stated that we expected approximately $2 billion in total resolutions. I'm pleased to share that we have already exceeded this target with $2.3 billion in total resolutions, which includes partial repayments. As of November 4, we have significantly improved liquidity by $283 million to $385 million, further delevered the portfolio and resolved a total of 9 watch list loans. As previously reported, we have foreclosed on select cash-flowing multifamily assets and have identified additional multifamily assets that are foreclosure candidates. We remain positive on the multifamily sector given the favorable long-term supply-demand dynamics and persistent housing affordability constraints. As we look ahead, we believe that the sharp decline expected in multifamily deliveries over the next few years, coupled with declining base rates should help offset any impact of an economic slowdown. Given our sponsors' experience as an owner, operator, and developer and the progress we have made in our REO portfolio to date, we believe we are well-positioned to think creatively about value enhancement and exit strategies. For many of these multifamily assets, in particular, we have identified opportunities to implement operational and capital improvements, some of which can be executed more quickly than others. Since foreclosing, we have received strong unsolicited interest from prospective buyers on certain properties, which we believe is a positive reflection of the underlying demand for these assets. Taking into account our business plans, the strong interest we are seeing in the market, and the current capital markets environment, we are actively evaluating opportunities to monetize select multifamily REO assets in the coming quarters. Overall, we feel positive about the progress we've made so far this year. In addition to reporting more than $2 billion of resolutions, we have achieved the following: we resolved 9 watch list loans representing $1.1 billion of UPB, bolstered liquidity by $283 million to $385 million today, reduced total borrowings by $1.4 billion, and increased our unencumbered asset pool to $548 million from $456 million. We believe this progress positions us well to achieve our near-term priority of addressing the August 2026 Term Loan B maturity, and we will continue to evaluate our options with respect to this maturity. Before turning the call over to Mike to discuss CMTG's financial results and the portfolio, I want to note that we will not be addressing the New York Mayoral elections in our prepared remarks. That said, we are happy to take questions in the Q&A portion of this call. Now I'd like to turn the call over to Mike.

Thank you, Richard. For the third quarter of 2025, CMTG reported a GAAP net loss of $0.07 per share and a distributable loss of $0.15 per share. Distributable earnings prior to realized gains and losses were $0.04 per share. Earnings from REO investments contributed $0.01 per share to distributable earnings net of financing costs. CMTG's held-for-investment loan portfolio decreased to $4.3 billion at September 30 compared to $5 billion at June 30. The quarter-over-quarter decrease was primarily the result of 4 loan resolutions that occurred during the quarter and the reclassification of a loan to held for sale. One resolution was a regular way repayment of a $168 million construction loan collateralized by a mixed-use property in Northern Virginia. Upon construction completion, the asset has experienced strong leasing momentum across its various components. Construction loans have been a valuable component of CMTG's portfolio and a point of differentiation for our firm, given our sponsors' development and asset management expertise. While our construction exposure has historically performed well, it has also become a smaller component of our portfolio as sponsors have pursued their business plans to refinance such assets upon completion. The other 3 resolutions, all watch list loans were addressed on last quarter's earnings call and consist of the discounted payoff on a $390 million loan collateralized by a New York City multifamily property as well as foreclosures of 2 loans collateralized by multifamily properties in Dallas. Finally, we reclassified a $30 million Boston land loan from held for investment to held for sale as a result of a third-party buyer prevailing at a mortgage foreclosure auction in September. Subsequent to the third quarter, the sale was executed modestly below carrying value and because the loan was unencumbered, generated $28 million of net cash proceeds. This transaction enabled us to enhance liquidity without incurring carry costs or assuming risks associated with taking title to this asset. To recap, we've had $2.3 billion of total resolutions year-to-date, which includes $81 million in partial repayments and 9 watch list loans totaling $1.1 billion of UPB. Turning to portfolio credit. During the third quarter, we did not have any loans migrate to a 4 or 5 risk rating. We had one loan moved to non-accrual, a $170 million 4-rated loan collateralized by a Colorado multifamily property. The underlying asset performance has been tracking below our expectations and has also been impacted by new supply in that market. We are evaluating all available options to pursue our remedies as a lender. Our total CECL reserve on loans at September 30 was $308 million or 6.8% of UPB compared to $333 million or 6.4% of UPB at June 30. Our general CECL reserve increased by $0.6 million to $140 million or 3.9% of UPB of loans subject to our general CECL reserve compared to 3.8% of UPB as of June 30. During the quarter, we determined that a sale of the New York hotel portfolio is no longer optimal amid evolving market conditions impacted by the New York City mayoral election. As a result, we reclassified the hotel portfolio to held for investment as we continue to evaluate the market. The underlying assets continue to perform well and the strong return on equity generated by the portfolio provides an opportunity to optimize value for our shareholders when market conditions become more favorable, particularly in light of the refinancing executed in June. We also made progress during the quarter on further sales from the commercial condominiumization of our mixed-use REO asset. To date, we've sold 9 of the 12 commercial condo units that were created. As Richard mentioned previously, it's our intention to accelerate the sale of some multifamily REO assets given positive market sentiment. Our focus on loan resolutions has strengthened our balance sheet by significantly reducing leverage and improving liquidity. During the third quarter, outstanding financings decreased by $376 million, which included $52 million of incremental deleveraging, bringing the reduction in financing UPB to $1.2 billion during the first 9 months of 2025 and to $1.4 billion year-to-date through November 4. This activity is reflected in the meaningful decrease in our net debt-to-equity ratio, which was 1.9x at September 30. This compares to 2.2x at June 30 and 2.4x at December 31, 2024. In terms of liquidity, as of November 4, we've increased our liquidity position by $283 million since year-end 2024. To quickly recap, at September 30, CMTG reported $353 million in liquidity, which has subsequently increased to $385 million as of November 4. At September 30, CMTG's total unencumbered assets were $398 million of loan UPB and $104 million of REO carrying value, which has since increased to a combined $548 million as a result of an additional loan becoming unencumbered, partially offset by the aforementioned loan and REO sales. We believe our liquidity position and unencumbered asset pool strengthen our position in addressing the upcoming maturity of CMTG's Term Loan B. We continue to explore various paths to a refinancing or extension, and we anticipate being in a position to provide additional details on a solution in the coming months. Before we open the call to Q&A, I'd like to share some recent news. We entered into an amendment to the terms of our Term Loan B, including the modification and waiver of certain financial covenants through March 31, 2026, including minimum tangible net worth and minimum interest coverage as defined, respectively. Pursuant to the terms of the modification, we're also utilizing a portion of our liquidity to make a principal repayment of $150 million on the Term Loan B. I would now like to open the call up to Q&A.

The first question comes from Rick Shane with JPMorgan.

Two questions that are related. The first is, what was the impact in the third quarter of reversal of accruals on the loan that was placed on non-accrual so that we can get a sense of what the run rate is. Obviously, there's a recurring impact, but there's also a restatement effectively.

It was about $4.5 million, the reversal of the accrued interest receivable on that particular loan.

Look, the narrative here has been that NII has been declining. Obviously, with that reversal, with the runoff of the portfolio, with the additional non-accrual, it was down again sequentially fairly sharply. When do you think we will see a trough? Are we there at this point? Or is there still going to be more downward pressure on NII?

Thanks, Rick. Great question. I think right now, we are really in the process of transitioning the portfolio and trying to aggressively move out of our 4 and 5-rated loans and non-earning and sub-earning assets. Obviously, with the liquidity we have, we can delever financings, which is helpful to earnings, but we really need to continue to make progress on moving out of the 4 and 5-rated loans, get that capital back and get it earning again. It's going to be a little, what I'll call, lumpy over the near term while we work through that.

I would like to mention that I believe the market has started to recover, and the conditions we are operating in are much more favorable for our goals. This may not directly address your question, but I think it's significant to highlight.

No. Look, it's a totally fair observation. I think there are 2 stages to this. One is the identification stage of challenges within the portfolio, and it feels like we have reached that point or are very, very close. Then there is the resolution stage. This is not like a credit card loan where 180 days later, you charge it off. These resolutions can take years as we've seen. I think we're probably in the midst of that right now.

We absolutely are in the midst of it. I will say that we have been in the midst of it for a while, and we are taking aggressive actions to resolve things. We are really not trying to allow problems to fester.

The next question comes from Jade Rahmani with KBW.

Can you give an update on the term loan? I know you touched on it, but where would liquidity stand post the $150 million repayment? Over what time frame do you expect to consummate a refinancing? Are you considering any equity-like options in conjunction with this to bolster the company's capital base, give it wherewithal to deal with problems in the portfolio and also improve the corporate financeability? Those things might include preferred equity.

Thanks, Jade. That's a big but important question. We continue to have very productive discussions regarding the term loan refinancing. Before the effect of this recent modification, the outstanding balance was around $712 million. We will make a paydown of about $150 million related to this modification, reducing cash to approximately $230 million to $235 million. We also expect to monetize some assets in the near term, which will further enhance liquidity. We envision a modest additional paydown in connection with establishing a new facility or extending the current one. At this point, we do not plan to enter the market for preferred equity as part of the solution, although it could be an option in the future. However, we believe that the business's trajectory concerning liquidity and resolving watch list loans is moving in the right direction at this time.

Jade, I would like to add that the cost of preferred equity is still quite high right now. We don't currently see an opportunity to increase leverage, whether implicit or explicit, through preferred equity to enhance our origination efforts. We're monitoring the situation, and if it changes, preferred equity could become an interesting approach for us.

Regarding the risk 5 and risk 4 loan buckets, which each total about $1 billion, that's $2 billion in total. Can you provide some expectations about the risk 5 and whether it will continue to moderate over the next 1 to 2 quarters? Do you anticipate any additional additions to the risk 4s, or will they continue to moderate? Will they improve through modifications to risk 3? Also, what is your current expectation for the REO balance, including any ongoing monetizations and the additional multifamily foreclosures you mentioned?

Yes. Jade, it's Priyanka. Thank you for the question. I'll start with the REO. We are continuing to monetize some of the REO. We have the mixed-use asset that we condominiumized that Mike discussed earlier. There will be some additional realizations out of that. Richard mentioned the realizations on some of our already REO multifamily. In the near term, we do expect the REO portfolio to increase in size. On Page 10 of our earnings, we show our 5-rated loans, and we show 4 of them being anticipated REO. Those are all in the multifamily asset class. This is a tool in the toolkit, and we always want to try to work with our borrowers. If we can't come to a resolution that we think is in the best interest of our shareholders, we are going to foreclose. We do identify those 4s as anticipated foreclosures and coming on REO. In terms of additional 5s and 4s, we've obviously classified those loans as we see fit today. It's a dynamic environment. We can't always control borrower decision-making or what happens at the borrower or the market level. Based on what we know today, we think that list is accurate, and we're actively negotiating with borrowers in the 4 category, as you mentioned, to try to come to a reasonable modification, which could result in an upgrade. Also, as we've proven, I think, year-to-date, there's a lot of tools in the toolkit in terms of other ways to monetize the assets to turn over the book, as Mike mentioned earlier.

I think the $640 million of risk 5 rated multifamily loans anticipated REO, that would put the REO portfolio to $1.3 billion and reduce the risk 5 from $1 billion to around $335 million. Then the risk 4, I don't believe that there's REO anticipated out of that. Is that correct?

Yes, that is correct regarding the 4s. For the 5s, the REO does not appear on our balance sheet at the UPB; it will be recorded at the carrying value after the specific CECL reserve. The $640 million figure is somewhat inflated; it is actually lower than that. We do expect growth in the REO portfolio. As I mentioned, there is clear visibility into our current REO portfolio, which is being partially monetized as well.

That would be actually about $1.24 billion, less the $80 million specific reserve? Do you know what the current yield is?

On the REO in total? Yes. It's a very mixed bag. For the hotels, that is in the low to mid-teens, which represents a very good return on equity due to the refinancing we accomplished earlier this year and the strong underlying fundamentals. As we have taken assets REO in the multifamily portfolio, there is considerable variability in the NOI numbers due to ongoing challenges, such as the eviction of non-paying tenants, which results in charge-offs. We are currently in a transition period, which has led to a lower yield. However, we expect this to improve over time. Currently, it ranges from very low single digits to 6% on an unlevered basis. Our goal is to enhance the yield on some of these assets, while others are ready for monetization now.

The next question comes from John Nickodemus with BTIG.

Somewhat related to James's last question regarding the anticipated REO multifamily 5-rated loans. Noticed that your largest loan, the California multifamily moved into that bucket of anticipated REO versus where it was in the last quarter. Would just love to hear what changed there and being such a significant size, how that process could play out in terms of taking REO?

Thank you for the question, John. It's Priyanka. We are very focused on this issue due to its significance. The change came after thorough discussions with the borrower, and it has become evident that the sponsorship is not willing to support the asset. At this point, we believe we have demonstrated our capability to assess whether to pursue loan sales, BPOs, short sales, and after evaluating these options, we have concluded that the most effective course of action is to take ownership of the asset. Transitioning from a loan to a deed can create immediate value if we choose to flip and sell it. Additionally, we have identified numerous opportunities for enhancing revenue and reducing expenses. This presents a valuable opportunity for our shareholders. Regarding the process, it will take place in California, which is a non-judicial foreclosure state, allowing for a straightforward process, and the sponsor is fully informed of the plan moving forward.

Then other one for me. I just wanted to ask about repayments; you've had 3 significant repayments in the second half of the year so far. Two of those were on loans that were on the watch list, a couple of 3-rated loans. Just curious if there's any line of sight on any significant repayments before the end of this year or maybe even early next year, whether that's out of the watch list or just out of the rest of the loan book in general?

Yes, thank you, John. The short answer is yes. As Richard and Mike mentioned, the capital markets are strong. We're observing borrowers at different stages of refinancing plans for both 3 and 4-rated loans, which we noted last quarter. We don't have control over the outcomes, and I can't specify a number, but it's certainly a possibility as we move into the remainder of the fourth quarter and the first quarter. Additionally, we are fully committed to dual tracking our goal of refreshing the portfolio and will prioritize executing transactions on challenging assets that are more influenced by lenders than borrowers. This will depend on various factors including borrower market and asset class, and we have a few situations currently underway that I anticipate will be resolved in the upcoming quarters.

There are no additional questions waiting at this time. I'd like to pass the conference back over to Richard Mack for any closing remarks.

Well, I just want to thank everyone for joining and for the questions. I would summarize by saying, we continue to be in a healing capital markets. We're seeing tightening spreads and high demand for assets. This is allowing us to create value in the portfolio by taking over assets when we need to, by accelerating repayments, all to continue to delever the book, reduce our cost of capital and be prepared to refinance our Term Loan B and hopefully get on the other side of that and resume originations and other opportunities. We thank you all again, and we look forward to speaking to many of you soon and to our next quarterly meeting. Thank you all very much.

That will conclude the Claros Mortgage Trust, Inc. Third Quarter 2025 Earnings Conference Call. Thank you for your participation. You may now disconnect your lines.