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CM

Claros Mortgage Trust, Inc. (CMTG)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 GAAP net loss was $56.2M (−$0.40 per share), Distributable Loss was −$24.6M (−$0.17 per share), and Distributable Earnings prior to realized losses were $31.0M ($0.22 per share). Liquidity was $116M (cash $114M), and book value per share was $14.83 .
  • Active portfolio actions: $374M of loan repayments (four full repayments totaling $354M UPB), three loans reclassified to held-for-sale ($356M UPB), and net financing deleveraging of $197M; post-quarter sales of two held-for-sale loans generated $51M net liquidity .
  • Credit costs elevated: CECL provision of $78.8M in Q3; total CECL reserve at 3.7% of UPB (specific reserves of 21.4% on 5-rated loans; general reserve of 2.1% on 3- and 4-rated loans) .
  • Management tone turned constructive on transaction activity into 2025; the stock was noted up ~6% on the morning of the call, reflecting investor receptivity to the evolving resolution strategy and macro backdrop .
  • Dividend update: a $0.10 per-share dividend was paid for Q3; subsequently, the company announced a pause of the common stock dividend (Dec 16, 2024), a notable capital allocation shift to preserve book value and flexibility .

What Went Well and What Went Wrong

What Went Well

  • Repayments/portfolio optimization: $374M loan repayments including full repayments of $123M NY office, $99M Nevada industrial, and $23M Georgia build-to-rent, reducing exposure to challenged asset classes and future funding obligations .
  • Opportunistic loan sales and liquidity: Sold a Miami land loan at 99.5% of par (post-quarter), achieving >15% gross IRR and executed additional held-for-sale loan sales after quarter-end to add $51M net liquidity .
  • Constructive macro narrative: “We are beginning to see an increase in positive momentum across commercial real estate… anticipated liquidity and borrowing cost relief on the horizon,” said CEO Richard Mack, leaning into improved transaction bids and flight-to-quality dynamics .

What Went Wrong

  • Elevated credit costs: Q3 CECL provision of $78.8M and principal charge-offs of $55.4M (including $23.2M accrued interest charge-off tied to an HFS reclassification), driving distributable loss and book value erosion .
  • Credit migration: Loans rated 4+ rose to 37% (from 35% in Q2); three multifamily loans (Las Vegas, Phoenix, Dallas; $186M UPB) moved to 5 and were placed on nonaccrual earlier in 2024, with specific reserves recorded in anticipation of potential REO .
  • Book value compression: Book value per share fell to $14.83 from $15.27 in Q2, reflecting realized losses and non-cash reserve build; adjusted BV also declined (15.96 vs. 16.44) .

Financial Results

MetricQ1 2024Q2 2024Q3 2024
Total Net Revenue ($USD thousands)58,825 64,487 64,877
GAAP Net Income ($USD thousands)−52,795 −11,554 −56,218
GAAP Diluted EPS ($)−0.39 −0.09 −0.40
Distributable EPS prior to realized losses ($)0.20 0.21 0.22
Distributable (Loss) EPS ($)−0.12 0.20 −0.17
CECL Provision ($USD thousands)69,960 33,928 78,756
Principal Charge-offs ($USD thousands)42,266 561 55,352
Book Value per Share ($)15.55 15.27 14.83

Segment/collateral exposure (Q3 2024):

Collateral TypeCarrying Value ($USD mm)% of Total Carrying Value
Multifamily2,615 42%
Hospitality1,231 20%
Office853 14%
Mixed-use537 8%
Land489 8%
For Sale Condo5 0%
Other530 8%
Total6,260 100%

Key KPIs:

KPIQ1 2024Q2 2024Q3 2024
Loan Portfolio ($USD Bn)6.7 6.8 6.3
Weighted Avg All-In Yield (%)9.1% 9.0% 8.4%
Floating Rate Loans (%)98% 98% 98%
Senior Loans (%)98% 98% 98%
Weighted Avg Adjusted LTV (%)69.2% 69.3% 71.6%
Total CECL Reserve (% of UPB)2.6% 3.1% 3.7%
Liquidity ($USD mm)265 191 116
Net Debt / Equity (x)2.4x 2.4x 2.4x
Total Leverage Ratio (x)2.8x 2.8x 2.8x
Loans risk-rated 4+ (% of portfolio)29% 35% 37%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per shareQ3 2024Declared $0.10/share for Q3 (paid Oct 15, 2024) Subsequent press release pausing common dividend (Dec 16, 2024) Lowered
Formal revenue/margins/OpEx guidanceN/ANone provided None provided Maintained (no guidance)

Management framed dividend reduction in Q2 to $0.10 as enabling capital allocation to preserve/enhance book value; the later pause reflects further prioritization of liquidity and flexibility .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Macro rates and CRE backdropCautious given “higher for longer” and stasis in capital markets; green shoots emerging; board cut dividend to enable capital deployment Constructive tone: potential “Goldilocks” setup; improving bids, expected transaction acceleration into 2025 Improving
Liquidity and repaymentsRepayments accelerating post-Q2; YTD realizations $873M by early Aug $374M Q3 repayments; subsequent HFS sales added $51M liquidity Improving
Multifamily REO strategyPreparing to take select cash-flowing multifamily assets into REO; opportunistic stance as cycle stabilizes Downgrades concentrated in multifamily; plan to leverage sponsor experience for value-add under REO More decisive
Office exposureReduction via repayment/swap of challenged NY office exposure Full repayment of $123M NY office loan; office remains 14% exposure De-risking
Reserves/CECLGeneral CECL rose to 2.6% (Q1) and 3.1% (Q2); reasons include duration and loss rates Reserve build continues to 3.7% of UPB; management emphasizes dynamic resolution paths Elevated but stabilizing
Financing covenantsConstructive repo counterparty modifications; maintaining term loan covenants Continued deleveraging ($197M net in Q3); avoid new term loan; plan private lender execution for REO financing Flexibility improving

Management Commentary

  • “We are beginning to see an increase in positive momentum across commercial real estate… and anticipated liquidity and borrowing cost relief on the horizon.” — Richard Mack, CEO .
  • “We will seek to extract value for our shareholders by… bringing select multifamily assets into REO under our management when we can and when we feel it is prudent.” — Richard Mack .
  • “Where do we get the best return on our invested capital?… selling a loan… and redeploying capital… or taking REO for long-term value—all about capital allocation.” — John (Mike) McGillis .
  • “Money was raised to do distressed… but patience is waning… competition for assets… private capital is bidding aggressively in loan sale markets.” — Richard Mack; plus family offices’ speed of execution noted by Priyanka Garg .

Q&A Highlights

  • Reserves and resolution path: Analysts pressed on reserve build and timing; management underscored dynamic decision-making between REO vs loan sale, with expectations of recovery over time under their management on REO assets .
  • Loan sale market depth and buyers: Private capital (credit funds, family offices) is actively bidding; family offices noted for speed and certainty; scarcity of distress trades keeps bids firm .
  • Unfunded commitments and capital needs: Net equity requirement ~$185M over ~2 years after in-place financing; plan private lender execution for REO financing; no near-term term loan market access .
  • Credit migration and multifamily focus: Watchlist concentrated in multifamily; readiness to take REO where borrowers lack capital; 4+ bucket progress with ~1/3 of YTD realizations from 4-rated loans .
  • Stock move: Call noted ~6% stock increase that morning, reflecting positive reaction to strategy/macro tone .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 2024 EPS and revenue was unavailable due to data access limits during this session; as a result, we cannot present a beat/miss analysis relative to consensus for Q3 2024 or prior two quarters in this report. We will update the estimates comparison when SPGI data access is restored (values unavailable via S&P Global in this session).

Key Takeaways for Investors

  • Elevated but proactive credit resolution: Significant Q3 CECL and charge-offs reflect front-loaded cleanup; portfolio composition and liquidity actions (repayments, HFS/loan sales) mitigate risk and set up for offense into 2025 .
  • Multifamily-centric playbook: Expect selective REO of cash-flowing multifamily to drive long-term value creation; management cites strong fundamentals and operating leverage from sponsor experience .
  • Deleveraging and flexibility: Net financing UPB down $197M; covenant modifications earlier in 2024 and preference for private lender REO financing should support execution without over-reliance on term loan markets .
  • Loan sale liquidity: Active and competitive private capital bid for loans (credit funds, family offices), enabling rapid resolution and capital redeployment where REO is less attractive .
  • Dividend policy aligned with capital allocation: Q2 cut to $0.10/share followed by a Q4 pause reflects prioritization of preserving/enhancing book value and funding accretive resolutions; expect dividend decisions to remain opportunistic to REIT requirements and portfolio needs .
  • Trading implications (near term): Stock responsiveness to resolution progress and macro tone (e.g., noted +6% move) suggests catalysts in continued repayments, HFS sales, and clarity on REO pipeline; watch for reserve trajectory and book value bridge in supplemental updates .
  • Medium-term thesis: As rates normalize and liquidity returns, CMTG’s multifamily exposure and disciplined capital allocation could expand net interest margins and book value recovery; monitor leverage, CECL trends, and asset-level KPIs by collateral type .