Hello, and welcome to the Claros Mortgage Trust Fourth Quarter 2025 Earnings Conference Call. My name is Becky, 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's 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 disclosed 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 reconciliations of non-GAAP measures to the 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 Fourth quarter earnings call. CMTG made a meaningful amount of progress last year, executing on several critical path items. In 2025, we accomplished the priorities we established at the start of the year, including resolving watchlist loans, enhancing liquidity and further deleveraging the portfolio. One year ago, we established a $2 billion total resolution target for 2025, and I'm pleased to report that we meaningfully exceeded this target, closing the year with $2.5 billion of total resolutions. This included the resolution of 11 watchlist loans, representing an aggregate UPB of $1.3 billion. This activity reflects our commitment to repositioning the portfolio by transitioning out of watchlist loans through thoughtful and decisive action. We also generated significant liquidity over the course of the year, which we used to meaningfully delever the portfolio and to reduce corporate debt. This momentum has carried into the new year with $389 million of full loan repayments happening, including a New York City land loan that was a watchlist loan that had been on nonaccrual since 2021. More importantly, subsequent to year-end, we retired the Term Loan B that was scheduled to mature in August of 2026. The term loan had a balance of $712 million in the first quarter of 2025 and was replaced with a new $500 million senior secured loan from HPS. This facility has 4 years of duration. Mike will provide additional color on this financing later in the call. We view this financing agreement with HPS as a positive for CMTG as it extends the maturity of our corporate debt to 2030 and provides the necessary flexibility to continue executing our business plan of resolving watchlist loans, delevering our balance sheet and reducing our capital costs over time. Looking ahead to the coming year, we remain optimistic but mindful of the macroeconomic backdrop and the uncertainty that has been a defining theme across the broader financial markets. With regard to real estate, we do not believe there will be a single catalyst that will drive an overnight recovery. Rather, we anticipate a period of gradual and steady improvement that will support transaction volume and investor confidence over time, especially if the bond market rally holds and rate cuts continue as expected. As it relates to property market fundamentals, we continue to observe encouraging indicators, including a reduction in new supply, tightening credit spreads and improving financing costs for new originations. We also see increased demand for industrial space and significant investments in areas such as artificial intelligence and domestic manufacturing. We believe that investments in domestic manufacturing will support job growth and incremental demand for real estate over time. While AI investments are likely to support future productivity gains, the impact on commercial real estate, excluding data centers, is still quite uncertain. Overall, we see a constructive backdrop for commercial real estate and CMTG in the years ahead. But in 2026, our focus will remain on asset management and decisive execution as we continue to resolve watchlist loans and work through our REO assets. Our goal is to position the company to begin to evaluate new lending opportunities towards the end of 2026 and lay the groundwork for portfolio growth in subsequent years. Before turning the call over to Mike, I want to acknowledge that the last 24 months have been the most challenging business period of my career and for many others in the real estate industry. And so I want to thank Mike, Priyanka and our entire team for their dedication and hard work during this difficult time and their commitment to overcoming the remaining challenges that are still ahead. I look forward to providing an update on our continuing progress in the coming quarters. And now I would like to turn the call over to Mike.

Thank you, Richard. For the fourth quarter of 2025, CMTG reported a GAAP net loss of $1.56 per share and a distributable loss of $0.71 per share. Distributable earnings prior to realized gains and losses were $0.02 per share. CMTG's held-for-investment loan portfolio continued to decline in the fourth quarter, decreasing to $3.7 billion at December 31 compared to $4.3 billion at September 30 and $6.1 billion at year-end 2024. Over the course of 2025, we reduced our exposure to select asset types that have generally experienced secular headwinds. As of the end of 2025, the portfolio no longer includes stand-alone life science, office exposure decreased from $859 million to $589 million and land exposure decreased from $489 million to $187 million. It's worth noting, however, that the decline in portfolio UPB over the past year was an inherent result of our strategy to turn over the portfolio and prepare for an eventual return to originations. Specific to the fourth quarter, the quarter-over-quarter decrease in UPB was primarily the result of 4-loan resolutions, consisting of 2 regular way loan repayments, one on a multifamily asset and the other on a life science asset, both in Pennsylvania. The other 2 were resolved by way of a discounted payoff and a foreclosure. In addition, as previously reported, we executed a sale of a $30 million Boston land loan. This transaction did not impact fourth quarter portfolio UPB because it was previously classified as held for sale at the end of the third quarter. The discounted payoff related to a $150 million previously rated office loan in Connecticut. Given the valuation of the collateral, we agreed to repayment at approximately 70% of par, which we view as a good outcome given current market values and a challenging submarket and tenancy. The borrower was motivated to arrive at a resolution due to additional credit support that had been provided. This transaction enabled us to resolve a watchlist loan, reduce CMTG's office exposure and generate approximately $35 million in net liquidity for CMTG, which was then used to reduce outstanding debt. The discounted payoff resulted in a $46 million principal charge-off. However, it's worth noting that the impact to fourth quarter book value was marginal as the potential loss had been previously contemplated within our general CECL reserve. Additionally, we resolved an $88 million New York City watchlist and nonaccrual land loan through a foreclosure process. The underlying collateral is a well-located undeveloped land parcel adjacent to Hudson Yards that allows for a mixed-use development. After reviewing the facts and circumstances of this loan's history, we concluded that foreclosing and ultimately marketing the land for sale was the best path to resolving the loan. Upon foreclosure, we assigned a carrying value of $94 million based on a third-party appraisal, approximately $6 million greater than our UPB, which further supported our decision to foreclose as a means to optimize recovery. We do not anticipate being long-term holders of this land and expect to seek an exit sometime in 2026. As Richard mentioned, last year, we exceeded our $2 billion loan UPB resolution target, achieving $2.5 billion of UPB and resolutions for the year. This progress has continued into the new year with CMTG reporting an additional $389 million in UPB of resolutions across 4 loans, which include 2 regular way repayments. The first repayment was on a $67 million New York City land loan that was previously a rated loan that had been on nonaccrual since 2021. The other was a $174 million loan collateralized by a newly built multifamily property in Salt Lake City, which generated net cash proceeds of approximately $52 million. This asset delivered last fall, which allowed the borrower to secure refinancing to lower its cost of capital. In addition, in line with our previously mentioned plans, we foreclosed on a multifamily property in Dallas with $77 million of UPB that was previously rated. Previously, the loan had a carrying value of $49 million and was written down to $37 million upon foreclosure. Lastly, we resolved a $71 million loan collateralized by a newly completed but vacant office property located in Seattle. Given the collateral value relative to our equity position, net of nonrecourse note-on-note financing, we determined the most prudent path was to transfer our rights and interests in our loan and the underlying collateral to the financing counterparty. Turning to portfolio credit. During the fourth quarter, the portfolio experienced a mix of ratings, upgrades and downgrades. We downgraded a $220 million loan collateralized by a luxury hotel property located in Northern California to a 4 risk rating. We continue to have conviction in the asset given the exceptional asset quality and highly desirable location and meaningful year-over-year improvement in operating performance. That said, the loan matured in August of 2025, and we have not reached terms in a modification with the borrower, which resulted in the downgrade to the loan's risk rating. We have also commenced foreclosure proceedings to provide additional optionality of outcomes. We also downgraded 3 loans to a 5 risk rating. In each case, the downgrades primarily reflect our decision to take a more aggressive approach in turning over the portfolio. I'd like to provide some color on these loans. The first loan is a $170 million loan collateralized by a multifamily property located in Denver. We're actively pursuing a near-term resolution for this loan and are currently in the process of executing our plans related to the asset. While we are limited in what we can share at this time, we have adjusted the carrying value of the loan as of December 31, 2025, to appropriately reflect our expectations for the anticipated resolution. We look forward to providing an update on this loan in the near future. The second loan is a $225 million loan collateralized by an office property located in Atlanta, Georgia, which matures in March. This asset, similar to other office assets in the area, continues to experience the challenges that have generally weighed on the office sector. We're currently evaluating our options for this loan. The last loan was the Seattle office loan that I just spoke to that we resolved subsequent to the quarter. During the fourth quarter, we recorded a provision for current expected credit losses of $212 million, which primarily consisted of a $283 million provision to our specific CECL reserve prior to principal charge-offs and a $62 million decrease in our general CECL reserve. The $283 million specific CECL reserve provision was primarily attributable to the 3 loans that were downgraded to a 5 risk rating during the quarter, changes to collateral values of previously 5-rated loans and the previously mentioned $46 million principal charge-off relating to the Connecticut office loan. It's important to note that of the $283 million specific CECL provision, $75 million was related to loans that were resolved during the fourth quarter or in 2026 year-to-date. The decrease in general CECL reserve was primarily attributable to a reduction in the UPB of loans subject to general CECL reserves. As a result, our total CECL reserve on loans receivable held for investment increased from $308 million or 6.8% of UPB at September 30 to $443 million or 10.9% of UPB at year-end. Our general CECL reserve decreased from $140 million or 3.9% of loans subject to our general CECL reserve to $78 million or 2.9% of UPB of loans subject to our general CECL reserve. Turning to REO assets. We made significant progress with our mixed-use New York City REO asset during the quarter. As a reminder, we completed the commercial condominiumization of the building in May. And as of year-end, we've sold all of the office floors as well as the signage component, generating total gross proceeds of $67 million, which was generally in line with our carrying value. We now intend to conduct a sale process for the fully leased retail component of the property. We believe this asset has served as an example of how we can leverage our sponsors' real estate expertise to creatively execute asset-level strategies and optimize outcomes. The New York REO hotel portfolio continues to perform well with operating results, exceeding expectations and annual NOI growth of approximately 14%. This asset has been accretive to earnings and given the refinancing we executed last year. We will continue monitoring the market for an opportune time to pursue an asset sale. Over the course of 2025, we strengthened the balance sheet by focusing on generating liquidity and reducing leverage by $1.7 billion. We continued this focus into the new year by reducing leverage by an additional $300 million, of which $90 million was applied to asset level deleveraging payments and towards the repayment of the Term Loan B. As Richard mentioned, at the beginning of 2025, the Term Loan B had a balance of $718 million and was scheduled to mature in August of 2026. In January 2026, we subsequently retired the Term Loan B and replaced it with a $500 million senior secured term loan from HPS, which matures in January 2030. This new senior secured term loan is priced at SOFR plus 675 basis points. And in connection with this financing, CMTG issued 10-year detachable warrants to purchase approximately 7.5 million shares of its common stock at an exercise price of $4 per share, which represents a 46% premium to the closing price for CMTG's common stock on January 30, 2026. In conjunction with the closing of the new term loan, we aligned and relaxed financial covenants across all of our financing facilities, which provides additional flexibility to execute our business plan going forward. Over the course of 2025, we decreased our net debt-to-equity ratio from 2.4x at December 31, 2024, to 1.9x at December 31, 2025. Following the closing of the senior secured term loan, we now have $153 million in liquidity, representing a $51 million increase compared to the prior year-end despite the significant deleveraging that occurred in 2025. We accomplished a great deal in 2025, and we recognize there is more work ahead. By resolving watchlist loans, generating liquidity, reducing leverage and subsequently addressing the Term Loan B maturity, we have strengthened the balance sheet and positioned the company well for the coming year. We look forward to building on this progress as we continue to execute across the portfolio. I would now like to open the call up to Q&A.

Our first question comes from Rick Shane from JPMorgan.

I understand that there's been considerable progress in repayments, loan sales, and foreclosures. The significant reserves put you in a strong position to negotiate loan resolutions. However, the stock is trading at a significant discount to book value, and it seems like a long road ahead to achieve returns close to your target rate. It has come to my attention that a REIT further along in its recovery chose to sell its assets near net asset value. Are there avenues we can explore, aside from addressing this portfolio, to generate shareholder value?

Rick, thank you for that question. We are clearly always open to everything. But our goal right now has to be cleaning the book up so that it is a much more transparent and easier to understand business. And I think we have to wait until we're able to deliver that before we can really understand if the market can evaluate our business properly. And so I think that's where we are headed at the moment.

Okay. And then to follow that up, nonaccruals have been cut in half throughout the course of the year. I am curious as we head into Q1 '26 and you think about the nonaccruals and the movement in the portfolio, NII just pure net interest income was about $12.5 million in the fourth quarter. Is it likely that it will be again lower in the first and second quarter of the year, given how the portfolio is marked at this point?

Yes, Rick, I think that's a fair assumption. As we resolve loans and reduce leverage, the top line interest income will continue to decrease. Deleveraging will partially offset this on the interest expense side. Additionally, further resolutions of nonaccrual loans or sub-performing assets should provide us with some capital to reduce leverage, which will help lower interest expenses further. However, we are in the process of transitioning the portfolio, so the net interest income will likely experience fluctuations until we can turn things around and return to originations.

Got it. And just one last question. I apologize for going first and asking so many questions. You’ve mentioned that the reserve levels position you to start resolving loans aggressively during 2026. With reserve levels over $400 million, realistically, what percentage of that reserve do you think could translate into losses over the next 12 months? Is it 25%, 50%, or 75%? This will help us get a better sense of how quickly you think things will be resolved.

Rick, it's Priyanka. I'll take that one. I'll start. Look, we're reserving based on what we think is appropriate at this time. We've resolved a tremendous number of loans in 2025. Half of them are on our watchlist. And year-to-date, we've already resolved 3 additional loans on our watchlist. So we think we have a good sense of the reserves that we need to take in order to accelerate resolutions and turn over the book. And so we think we're appropriately reserved for that. Now, there can be new information and we might have changes in this really dynamic environment depending on where negotiations with borrowers or financing counterparties or anything may go, but we think we're appropriately reserved today, and we have a lot of data points in a lot of different ways in terms of loan sales, which have really tapered off throughout 2025, more doing DPOs and other transactions, foreclosures, we think we have a really good sense of where the reserve level should be.

Okay. But I appreciate that. The question is more about the timing of those resolutions as opposed to the level of the reserve.

Yes, I believe the timing is important. We're very focused on speeding up the process of dispositions, both in our loan book and REO book. As Richard mentioned earlier, we recognize the need to turnover this portfolio to clearly demonstrate our book value. While I can't provide specific time frames, I hope that our progress in 2025 will indicate we're moving quickly, and we aim to continue accelerating that process. Additionally, the stability of our balance sheet following the transaction we closed in January significantly enhances our ability to do this with more efficiency and speed.

Our next question comes from John Nickodemus from BTIG.

With the Term Loan B refinancing completed, several more resolutions completed as well since we last spoke, how are you thinking about liquidity levels here in '26? I know you're looking to improve them and it is up year-over-year, but we did see it come down significantly since November, which is to be expected. Just trying to get a better handle on how we should think about the trajectory there for this year.

Thank you for the question. A significant portion of the liquidity generated over the past year has been used to reduce our balance sheet leverage, and we plan to continue this effort as we work through loans and real estate owned assets throughout 2026. With the progress we've made in deleveraging, we currently have a substantial liquidity cushion above our minimum requirements. Given the minimal future funding we expect from our existing loan portfolio, we believe our liquidity is in a strong position right now. If we generate additional liquidity beyond our current levels, we will continue to focus on deleveraging the balance sheet. By the end of this year, we are assessing various capital allocation options for our available liquidity, which may include originating new loans, further reducing balance sheet leverage, or exploring other capital allocation alternatives.

Great. That's really helpful. And then for my second question, this kind of goes into what Priyanka was mentioning in response to Rick's last question. But we've heard a lot about improvements for the greater commercial real estate sort of transaction activity, liquidity and also I have seen some of your peers talk about being more aggressive about resolving challenged loans or REO assets during this round of earnings. Given that backdrop, has that changed your expectations for sort of the pace or timing of sales out of both the REO portfolio as well as resolutions from the watchlist?

So John, thanks for that. This is Richard. I believe we're in a much more positive environment, which will lead to improved performance in areas we had postponed resolving. However, it's important to note that the market has not fully recovered. Transaction volume remains lower than we anticipated at this point. We are trying to respond to market conditions while ensuring we manage our portfolio effectively. We aim to prioritize execution and maintaining a clean portfolio rather than simply waiting for the market to bounce back. That said, we are starting to benefit from having delayed some asset resolutions that we plan to address this year. I think Priyanka would like to contribute to this discussion.

Yes. Thanks, Richard. I agree with everything you said. I would add that due to healthier capital markets and banks re-entering the mix, we are seeing more regular repayments on larger loans. I believe that the trend in the coming year will be fewer extensions and modifications, with an increase in repayments on performing loans. This will have an impact on net interest income as we discussed earlier, and it will also help us manage excess cash and make decisions about capital allocation.

Our next question comes from Chris Muller from Citizens Capital Markets.

I guess looking at your REO portfolio, most of the properties have some financing against them. And I see your comment that the hotel portfolio is the most profitable in the aggregate contribution to DE. But can you guys talk about some of the individual NOIs within that REO portfolio?

Yes, this is Priyanka. Regarding the NOI, in the mixed-use asset, we are retaining the fully leased retail space, which is 100% leased and generating rent. Therefore, there is NOI coming from that asset, which we are holding unlevered. For the multifamily assets within our REO portfolio, the situation varies. Some are producing real NOI, while others face challenges in that area, but this is part of our strategy as we move towards foreclosure. The assets currently generating NOI were not doing so at the time of foreclosure. Our goal is to invest capital wisely to market these properties effectively to potential renters and ensure that property managers are held accountable. If any assets do not have positive or significant NOI, it's part of our overall plan and was anticipated. Additionally, the capital being invested is supported by financing structures that retain funds for property improvements, which does not impact our balance sheet cash.

Got it. That's a good transition to my follow-up. Do you anticipate a significant amount, or could you provide an estimate for the CapEx related to these REO properties?

It's not going to be a significant amount. I hesitate to provide a specific figure because it will largely depend on our hold periods. We are accelerating dispositions, which is highlighted in our earnings supplement on Page 8. To the extent that these are shorter-term holds, we will spend less capital, but we want to be ready to invest more if the hold is longer.

Got it. That makes a lot of sense. And just one last quick one, if I could. Does the new term loan allow financing of watchlist loans?

We already have a facility in place that enables us to finance those loans. The new term loan functions more like a corporate debt facility. While it is senior secured, it resembles a corporate mezzanine loan structure rather than an asset-specific financing structure, which we utilize at the direct asset level.

We currently have no further questions. So I'll hand back over to Richard for closing remarks.

Well, I want to thank everyone for joining and for the questions and maybe summarize some of the things that we've mentioned today. 2025 and beginning of 2026 have been about resolving watchlist loans, enhancing liquidity, deleveraging the book by $2 billion. In 2025, there was $2.5 billion of resolutions. 2026, almost $400 million so far. We got the TLB retired. We now have a relationship with HPS, who's part of BlackRock, the largest asset manager in the world. All this amidst a constructive and improving real estate credit market and real estate capital markets in general. And so while we're not here to declare victory, we are seeing life at the end of the tunnel, and we are getting closer to a clean book that we expect will allow the market to more appropriately value our stock. And that's really our goal every day when we come to the office. And so it's been hard. It's been a long road, but we are really excited to be feeling like we can see the light at the end of the tunnel and that the capital markets are cooperating with us. So we thank you for joining us and for monitoring our progress and for the questions, and we look forward to speaking again at the next quarterly call. Thank you all.

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