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Claros Mortgage Trust, Inc. (CMTG)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 GAAP net loss was $11.6M, or $0.09 per diluted share; Distributable Earnings (DE) were $28.9M, or $0.20 per diluted share, and DE prior to realized losses were $30.4M, or $0.21 per diluted share .
  • Management cut the Q3 2024 dividend to $0.10 per share to preserve capital for opportunistic uses (REO investments, debt paydown, term loan or stock buybacks), citing “green shoots” and expected Fed rate cuts as potential tailwinds .
  • Liquidity was $191M (cash $148M, undrawn credit $43M), with outstanding financing reduced by $128M; subsequent to quarter-end, CMTG received three full loan repayments totaling $244M UPB, reducing office exposure and leverage .
  • Credit remained pressured: loans risk-rated 4 or higher rose to 35% (from 29% in Q1), CECL reserves were 3.1% of UPB with a $34M provision this quarter; pace of deterioration decelerated per management .
  • Stock reaction catalysts: dividend reset and broadened capital allocation flexibility, covenant relief on repo facilities (lower interest coverage and tangible net worth minimums), and accelerating repayments post-quarter .

What Went Well and What Went Wrong

What Went Well

  • REO performance improved: the NYC hotel portfolio’s expected seasonality produced a $0.05 per-share improvement vs Q1; total REO contributed $0.02 per share to DE in Q2 vs a $0.03 loss in Q1 .
  • Financing flexibility increased: CMTG expanded its largest financing relationship and modified covenants across repurchase facilities, reducing minimum interest coverage and tangible net worth requirements .
  • Post-quarter repayments accelerated ($244M UPB), including a 4-rated NY office loan resolved via partial cash plus discounted loan and equity collateral, improving asset quality and visibility of payoff .

What Went Wrong

  • Watch list expansion and nonaccruals: risk-rated 4+ loans increased to 35%; a $88M NY land loan moved to nonaccrual; several downgrades included Dallas multifamily and a CA for-sale condo loan .
  • Elevated credit costs: CECL provision of $34M ($0.24/share), with general reserves raised due to longer expected durations and higher third-party historical loss rates .
  • Liquidity down sequentially ($265M → $191M) as capital was used to delever and manage liabilities; dividend cut to $0.10 signals capital preservation priority in the near term .

Financial Results

Income Statement (Selected Items)

Metric ($USD Millions, unless noted)Q1 2024 (oldest)Q2 2024 (newest)
Interest and Related Income$160.8 $155.1
Interest and Related Expense$115.9 $113.2
Net Interest Income$44.9 $41.9
Revenue from Real Estate Owned$13.9 $22.6
Total Net Revenue$58.8 $64.5
Total Expenses$39.2 $41.2
GAAP Net (Loss)($52.8) ($11.6)
Net (Loss) per Share (Basic/Diluted)($0.39) ($0.09)
Net Income Margin % (Net loss / Total net revenue)(89.7%) (17.9%)

Distributable Earnings (Non-GAAP)

MetricQ1 2024 (oldest)Q2 2024 (newest)
DE prior to realized losses ($MM)$27.7 $30.4
DE prior to realized losses ($/share)$0.20 $0.21
Distributable Earnings ($MM)($16.8) $28.9
Distributable Earnings ($/share)($0.12) $0.20
REO DE contribution ($/share)($0.03) $0.02
Principal charge-offs ($MM)($42.3) ($0.6)

Balance Sheet, Leverage, and Portfolio KPIs

KPIQ1 2024 (oldest)Q2 2024 (newest)
Total Liquidity ($MM)$265 $191
Cash ($MM)$233 $148
Approved Undrawn Credit Capacity ($MM)$32 $43
Book Value per Share ($)$15.55 $15.27
Adjusted Book Value per Share ($)$16.47 $16.44
Net Debt / Equity (x)2.4x 2.4x
Total Leverage Ratio (x)2.8x 2.8x
Weighted Avg All-in Yield (%)9.1% 9.0%
Floating-rate Loans (%)98% 98%
Senior Loans (%)98% 98%
CECL Reserve (% of UPB)2.6% 3.1%
Loans risk-rated 4+ (% of portfolio)29% 35%

Segment Breakdown (by Collateral Type, % of Carrying Value)

Collateral TypeQ1 2024 (oldest)Q2 2024 (newest)
Multifamily40% 40%
Hospitality18% 18%
Office14% 14%
Mixed-use9% 9%
Land8% 8%
For Sale Condo3% 3%
Other8% 8%

YoY Context (Selected)

MetricQ2 2023 (oldest)Q2 2024 (newest)
DE prior to realized losses ($MM)$50.3 $30.4
DE prior to realized losses ($/share)$0.35 $0.21
Distributable Earnings ($MM)($14.5) $28.9
Distributable Earnings ($/share)($0.10) $0.20
Book Value per Share ($)$16.94 $15.27

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Common Dividend per ShareQ3 2024$0.25 paid in Q2 2024 $0.10 declared for Q3 2024 Lowered
Operating/Financial Guidance (Revenue/EPS/Margins/OpEx/Tax)N/ANot providedNot providedMaintained “no formal guidance”

Management framed the dividend reset as enabling capital redeployment to protect and enhance book value and position for long-term earnings growth .

Earnings Call Themes & Trends

TopicQ4 2023 (Q-2)Q1 2024 (Q-1)Q2 2024 (Current)Trend
Macro and rates“Higher-for-longer,” constrained capital markets; soft-landing vs CRE pressure Uncertain inflation; capital markets stasis; negative leverage “Green shoots” with expected Fed cuts; liquidity slowly returning Improving
Liquidity/repayments/loan salesLoan sales at 96% UPB; liquidity $238M; preserve liquidity Liquidity $265M; $439M voluntary deleveraging; net equity funding ~$321M over ~2.7 years Liquidity $191M; financing -$128M; subsequent $244M repayments; $473M voluntary deleveraging since Q1’23 Acceleration post-quarter
REO strategyWill foreclose selectively; “equity mindset” Potential to foreclose on cash-flowing multifamily (lower capital vs construction) Pivot to be opportunistic around REO and “ride the value up” with rate relief; invest in current/future REO More aggressive
Risk ratings/CECL4-rated share rose; CECL 2.2% UPB 4+ at 29%; CECL 2.6% 4+ at 35%; CECL 3.1%; $34M provision; decelerating deterioration Mixed (pressure but slowing)
CovenantsActive counterparty dialogues; deleveraging; covenant compliance Compliant; negotiating repo covenant mechanics Covenant relief achieved (lower interest coverage & TNW); expanded largest counterparty facility Improved flexibility
Dividend policyBoard evaluating possible “bullish dividend cut” concept Sustainability discussed; seasonality impact noted Cut to $0.10 for Q3 to redeploy capital Lowered
Office exposureCT office maturity managed; short-term extension and credit support Maturity set; tenant retention but short WALT NY office payoff with superior collateral; office exposure reduced Reducing

Management Commentary

  • Strategy and macro: “Not surprisingly then, we are starting to see green shoots in the commercial real estate market… we also believe that the optimism around the Fed reducing rates provides us a compelling opportunity to reevaluate how we are deploying and directing our capital” — Richard Mack, CEO .
  • Capital allocation pivot: “Our Board… decided to adjust our quarterly dividend to $0.10 per share… [to] preserve and enhance book value while also positioning the portfolio for earnings growth… may include investing in… REO assets, paying down high-cost debt, buying back our term loan or buying back CMTG stock” .
  • Credit and reserves: “During the quarter, we recorded provisions for CECL reserves of $34 million… increase in the general CECL reserve is primarily a result of increases in expected loan duration… and historical loss rate data” — Mike McGillis, CFO .
  • REO posture: “We should be opportunistic around REO… if [borrowers] are not able to manage the property… we want to take those assets and ride the value back up” — Richard Mack .

Q&A Highlights

  • REO approach: Management is pivoting to opportunistically take cash-flowing assets into REO where they can add value; borrowers may respond by finding rescue capital as CMTG acts more decisively .
  • Covenant relief: Repo facilities modified to reduce interest coverage and TNW covenants; term loan (maturing Aug 2026) discussions expected later in 2025 for modifications/extension/paydowns; currently compliant .
  • Capital allocation: With accelerating repayments, uses include REO, debt paydown, potential share and term-loan buybacks; dividend cut aligns with retaining capital for book value/earnings growth rather than signaling lower DE .
  • Office trade detail: Exchanged NY vacant office exposure for a performing senior piece on a retail asset plus equity collateral; expected cash-basis recognition of distributions .
  • REO pipeline sizing: Hard to quantify; loans tied to one sponsor (incl. Dallas multifamily) around 5% of UPB are likely candidates .

Estimates Context

  • We attempted to retrieve S&P Global consensus estimates for Q2 2024 revenue and EPS; the data was unavailable at time of analysis due to SPGI daily request limits. As a result, we cannot assess beat/miss vs Wall Street consensus for this quarter. We will update when SPGI access is available [functions.GetEstimates error].

Key Takeaways for Investors

  • Near-term: Expect headline sensitivity to dividend reset and credit updates; the $0.10 dividend preserves capital for potentially accretive redeployment (REO, debt buybacks), which can catalyze book value stabilization and eventual earnings growth as rates fall .
  • Credit trajectory: Risk-rated 4+ loans increased to 35% and CECL rose to 3.1% of UPB, but management sees a decelerating deterioration and is acting to resolve watch-list loans (e.g., subsequent $244M repayments) .
  • Operating momentum: Sequential improvement driven by REO seasonality and fewer charge-offs; monitor REO contribution sustainability and nonaccrual resolutions in H2 .
  • Balance sheet actions: Covenant relief and deleveraging enhance flexibility; continued repayments may fund accretive term-loan/share buybacks and reduce financing costs .
  • Sector positioning: Multifamily remains the largest exposure (40%), with management constructive on long-term fundamentals; office exposure is being actively reduced .
  • Valuation lens: Management believes shares are “significantly undervalued,” implying potential buyback activity if liquidity allows .
  • Watch for macro: A rate-cut cycle could improve capital markets, increase payoffs, and support asset values—key external driver of earnings and book value trajectory .

Appendix: Definitions and Non-GAAP

  • Distributable Earnings and DE prior to realized losses are non-GAAP measures that adjust GAAP net income for non-cash and certain other items; charge-offs flow through DE when deemed non-recoverable .
  • Liquidity includes cash and approved, undrawn credit capacity .
  • Net Debt/Equity and Total Leverage are non-GAAP leverage metrics defined in the supplemental .