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CM

Claros Mortgage Trust, Inc. (CMTG)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 was challenged by higher CECL provisioning and principal charge-offs, yielding GAAP net loss of $52.8M (-$0.39 per share) and distributable loss of -$0.12 per share; pre-realized losses DE fell to $0.20 per share from $0.31 in Q4, driven by NYC hotel seasonality (-$0.08) and three loans placed on nonaccrual (-$0.03) .
  • Liquidity improved to $265M (cash $233M, undrawn credit $32M), aided by loan sales (96% of UPB on three loans sold) and voluntary deleveraging ($82M Q1; $439M since Q1’23); book value per share declined to $15.55, adjusted BV $16.47 .
  • Portfolio shifted more defensive: risk-rated 4+ loans rose to 29% (from 26% in Q4; 17% in Q3); CECL reserves increased to 2.6% of UPB (specific reserves 22.9% on 5-rated loans; general 1.6%) .
  • Dividend held at $0.25 in Q1 (and again for Q2), with management emphasizing medium-term dividend capacity and quarterly Board review; sustainability remains a key investor focus amid nonaccruals and credit costs .

What Went Well and What Went Wrong

What Went Well

  • Proactive portfolio actions: sold three held-for-sale loans at 96% of UPB and later sold a 4-rated multifamily construction loan at 80% of UPB, adding liquidity and reducing future funding obligations .
  • Deleveraging progress: $82M voluntary deleveraging in Q1; $439M since Q1 2023; lenders remain constructive and covenants are currently compliant per management .
  • Management focus and Sponsor support: CEO reiterated emphasis on proactive asset management and optimizing the balance sheet in a “higher for longer” environment, leveraging Sponsor experience to drive outcomes .

What Went Wrong

  • Earnings pressure: GAAP net loss (-$52.8M) and DE pre-realized losses down to $0.20 per share (from $0.31), driven by $70M CECL provision and seasonality at NYC hotels; three multifamily loans (UPB $186M) moved to nonaccrual .
  • Credit migration: loans rated 4+ increased to 29% of portfolio; CECL ratio rose to 2.6% of UPB, reflecting heightened credit risk and loss recognition (e.g., $42M principal charge-off on the sold multifamily construction loan) .
  • Book value decline and earnings drag: BV/share fell to $15.55; risk and nonaccruals constrained distributable earnings versus dividend run rate, prompting investor concerns about dividend sustainability in Q&A .

Financial Results

MetricQ3 2023Q4 2023Q1 2024
Total Net Revenue ($USD Millions)$80.6 $76.0 $58.8
Net Interest Income ($USD Millions)$58.4 $49.7 $44.9
Revenue from REO ($USD Millions)$22.1 $26.2 $13.9
GAAP Net Income ($USD Millions)-$68.9 $34.0 -$52.8
GAAP Diluted EPS ($USD)-$0.50 $0.24 -$0.39
Distributable Earnings per share (pre realized losses) ($USD)$0.35 $0.31 $0.20
Distributable (Loss) Earnings per share ($USD)-$0.16 $0.26 -$0.12
Net Income Margin (%)-85.6% 44.8% -89.7%

Segment breakdown (Q1 2024 carrying value and % of total):

Collateral TypeCarrying Value ($MM)% of Total
Multifamily$2,669 40%
Hospitality$1,235 18%
Office$967 14%
Mixed-use$612 9%
Land$519 8%
For Sale Condo$219 3%
Other$509 8%
Total$6,729 100%

KPIs and trajectory:

KPIQ3 2023Q4 2023Q1 2024
Loan Portfolio ($Bn)$7.1 $6.9 $6.7
Weighted Avg All-In Yield (%)9.5% 9.1% 9.1%
Loans risk-rated 4+ (% of portfolio)17% 26% 29%
CECL Reserve (% of UPB)2.2% 2.2% 2.6%
Total Liquidity ($MM)$433 $238 $265
Net Debt / Equity (x)2.7? No—2.3x 2.4x 2.4x
Total Leverage Ratio (x)2.7x 2.8x 2.8x
Book Value per Share ($)$16.25 $16.28 $15.55
Adjusted Book Value per Share ($)$17.00 $17.03 $16.47
Dividend per Share ($)$0.25 $0.25 $0.25

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per shareQ1 2024$0.25 $0.25 Maintained
Dividend per shareQ2 2024 (declared post-Q1)N/A$0.25 Maintained
Revenue, margins, OpEx, OI&E, tax rateQ1 2024Not providedNot providedN/A (no formal guidance)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2023 and Q4 2023)Current Period (Q1 2024)Trend
Macro and ratesElevated rate environment; proactive asset management emphasized “Higher for longer” stance; uncertainty on Fed cuts and capital markets stasis Persistently cautious
Liquidity and deleveragingLiquidity $433M (Q3); $238M (Q4); active loan sales and reclassification to held-for-sale Liquidity $265M; $82M voluntary deleveraging; constructive lender dialogue Stabilizing, proactive
Credit quality and CECLCECL 2.2% in Q3 and Q4; 4+ rated loans 17%→26% CECL 2.6%; 4+ rated loans 29%; three multifamily loans to nonaccrual Tightening credit
Loan sales/ResolutionsQ3: $188M loan sales; $73M charge-off (SF multifamily) Q1: sold 3 loans at 96% UPB; sold SoCal MF construction loan at 80% UPB; market depth mixed (hedge funds, family offices) Continued portfolio pruning
Dividend stancePaid $0.25 Q3 and Q4; investor focus on coverage Management sees medium-term capacity; seasonality explained; quarterly Board review Cautious maintain
Covenants/financingWarehouse capacity ~$7.3–$7.8B; covenants in compliance Compliant; negotiating interest coverage mechanics with repo lenders Manageable with engagement
Office exposureHighlighted specific large loans and maturities CT office ($150M) close to extension; strong credit support via guarantees idiosyncratic; monitored
Origination outlookLimited new issuance; focus on asset management Preparing to originate post-downturn; awaiting transaction volume recovery Future optionality

Management Commentary

  • CEO framing: “Dynamic macroeconomic factors continue to create uncertainty… our focus is on proactive asset management [and] optimizing our balance sheet…” .
  • Strategy in macro context: “We continue to believe that a conservative and defensive stance is prudent… repayments [will] be slow… proactive asset management will remain a key focus” .
  • Portfolio actions: “We received a full repayment… including default interest and late fees” on a 4-rated NYC hospitality construction loan; sold SoCal multifamily construction loan at 80% of UPB to add liquidity and reduce future funding obligations .
  • Financing/covenants: “We complied with all of our covenants… expect to work with repo lenders on modification of interest covenant mechanics… constructive dialogues” .

Q&A Highlights

  • Dividend sustainability: Management targets medium-to-long-term paying capacity; Q1 DE pre-credit was seasonally depressed by NYC hotels; dividend reviewed quarterly with multiple scenarios .
  • Rapid migration to realized loss on a construction loan: Decision driven by credible buyer interest and trade-off of upfront liquidity versus capital-intensive foreclosure and development timeline .
  • Covenants and lender engagement: Currently compliant; expect to work through interest coverage mechanics with repo lenders; deleveraging supports counterparty trust .
  • Specific credit updates: California multifamily moved to risk rating 4 due to cap purchase hesitancy; management optimistic given asset quality; CT office nearing short-term extension with strong sponsor credit support .
  • Loan sale market depth: Active demand from hedge funds (near-par trades) and family offices/developers (discounted loan-to-own strategy), though overall transaction volume remains muted .

Estimates Context

  • S&P Global Wall Street consensus EPS and revenue estimates for Q1 2024 were unavailable due to data access limits at this time; as a result, beat/miss versus consensus cannot be determined. Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Portfolio risk is elevated but manageable: CECL rose to 2.6% and 4+ risk-rated loans to 29%; management is proactively pursuing loan sales, foreclosures where cash-flowing, and deleveraging to stabilize earnings and liquidity .
  • Near-term earnings volatility likely: REO seasonality and nonaccruals pressured Q1 results; expect quarterly noise while credit resolutions progress .
  • Dividend maintained, but watch coverage: With pre-credit DE of $0.20 vs $0.25 dividend, sustainability hinges on asset resolution pace and normalization of REO contribution; investor focus will persist .
  • Liquidity trajectory improving: $265M available, reduced unfunded commitments, and voluntary deleveraging increase financial flexibility; lender engagement constructive on covenants .
  • Loan sale market offers optionality: Depth across buyers provides pathways to accelerate resolutions and liquidity at varying price points; expect continued pruning of higher-risk exposures .
  • Office and select multifamily assets are idiosyncratic risks: Active modifications/extensions and sponsor guarantees mitigate office risk; cash-flowing multifamily foreclosures could improve earnings versus nonaccrual status .
  • Medium-term thesis: As transaction volumes recover and capital markets normalize, origination activity may resume; earnings power should improve once nonaccruals and credit costs peak .

Citations:

  • Q1 2024 8-K press release and supplement:
  • Q1 2024 earnings call transcript:
  • Q4 2023 8-K press release and supplement:
  • Q3 2023 8-K press release and supplement:
  • Other relevant press releases: Dividend declaration Q2 2024: