Claros Mortgage Trust (CMTG) 13 Nov 222022 Q3 Earnings call transcript

Welcome to the Claros Mortgage Trust Third Quarter 2022 Earnings Conference Call. My name is Elliot, and I'll be your conference facilitator today. [Operator Instructions]. I would now like to hand over the call to Anh Huynh, Vice President of Investor Relations for Claros Mortgage Trust.

Thank you. CMTG's Mack, Mike Officer of McGillis, Trust; Jai Richard Claros Chairman Claris by and Trust; Officer. Mortgage President Agarwal, joined Chief and Executive of Mortgage I'm Financial Chief and Director

the you also in we and Garg, presented Portfolio distributed supplement. Originations; information and CMTG's Kevin leads leads Prior conjunction Management. encourage President, Priyanka Executive President, earnings Executive Vice We call. who to have today's to documents MREC Asset who with Vice reference these MREC Cullinan, on this We call,

result represent materially important forward-looking If as you as views of contact including with by include factors, remind discussed today's have other call statements Any Litigation of the results and to in any today's from meaning undertake call, differ of SEC. may these Private the this our questions everyone forward-looking those of me. on please various following Act no indicated forward-looking our obligation call filings we the update Actual only Reform to them. I'd within Securities today, made statements like a XXXX. statements that may those

We will measures we as investors financial may certain also to which to operating earnings, to be be important our performance. non-GAAP believe assess distributable such referring

For turn refer would the non-GAAP I to to reconciliations, please now call Richard. like the supplement. earnings over to

will economy division valuations engineer healthiest is supply the market at remains soft geopolitical to U.S. across prevailing borrowers investors classes that major believe rising for overseas quarter asset the stronger and rates, in the home. international chain earnings third investors to note world and data compared joining to and That Despite widely be and call. to policy our as uncertainty it U.S. and the political more distributed and mixed and be risk recessions. high morning, that debate prior grapple us that resilient landing. Good these Economic may resilient an you, disruptions, inflation, its sector the as and ability is everyone, we more understatement for thank the than Fed's uncertainty interest factors, a interest assess property rate economy and themes It all with be markets. volatility continue

a However, now XXXX to to is our likely is environment. it the view as that sometime current recession Fed in occur inflationary resolve attempts the

market. recognize in CMTG. challenging the dependent to it a and asset growth, over near NOI the Looking ability we by on more driven opportunities that pressure valuations be ahead, important and have lenders real on anticipate the manage impact note, quality property positive some highly is and are demonstrated to slower economic but term, conditions, for through higher On and type, that interest well-capitalized there uneven well-positioned estate like will cases, rates

transitional focus as Our on a investment employ underwriting secured opportunities We just lending if sponsorship. so, with are by and strategy to disciplined asset to construction is and high-quality grade portfolio more management. assets on not focused, institutional approach

that environment. we today's result, our portfolio positioned well evolving believe in a is As market

multifamily, allocation, XX% portfolio have therefore, and loans earnings benefited more of on portfolio the caps based remaining With interest benchmark growth environment. we XX% which rate else asset could portfolio. of rate and floating rate for our has increases All more our all floating place. heavily than further nearly additional current regard accounts into the of are than comprised rate is loan to in interest towards translate rate from portfolio Our current weighted equal,

European no office exposure low retail. exclusively exposure. not stand-alone on is Today, relatively our we focused and do portfolio have any U.S. and We investments, have

team, more we coastal have and leveraged and been that a this, and to believe the recent rent growth Mack select made believe scenario portfolio from Estate analysis our by do and Moreover, low underlying away For sheet downturn. an To insights broader markets, in be we've diversifying on we LTV Real the markets. against that the in economic the job Group an asset equity of trends markets involving which leverage in well last capitalizing number favorable values. investments of the XX% resilient will we with on average has insulated adjustments of X design, prove real years, demographic balance estate in these we are a

leverage we and million to In is that constructed end the a access strategically economic formation. portfolio our managing times, and uncertain conservative and our conservative we employed critical, consistently be to that our are capital low note to approach a to approach despite leverage balance adequate like continue than $XXX have at quarter. the We market that third We sheet liquidity and will since business of have relatively view our resilient had more uncertain landscape. the would of liquidity believe to

cycles. Our of senior through economic management real has team several experience estate multiple global investing decades

similar market is new factors the both cycle are areas. each that focus unique, and environment our our team informing is recognizing While current in

in down priorities management. Those residential quarter, advantage strong at share than proactive third another X% we quarter, the include less pleased historical nonaccrual in had strategic Demonstrably, at on high execute to beginning During asset took our we of high-growth million the new the the loans, of liquidity to our management $XXX of market end hospitality originations, strategic and targeted our markets from year. to the conviction and spreads our the drive-to originate X% represented loans loan. the of We're position continued on priorities. dislocation focusing balance the and of while sector, themes portfolio sheet

model. summary, market business manager capital for lender, of billion quarter challenging color facility our our integrated will additional and $X match In sponsor's mark-to-market a in the relationships we institutional with JPMorgan. Jai financing. exciting a addition owner this despite provide achievements strength and team, non into to real believe the speaks management our developer closing. entered term portfolio environment, to to operator, Notably, estate property access we financing have on to we continue Additionally,

expect remaining selectively our we target only originations return the upon to we volume ahead, as those see defensive. to Looking opportunities best risk-adjusted seize while

team and depend It the deployment where the and we what for we as disruptions. CMTG on ahead. execute portfolio, will We has compelling pace transaction investment year of be as Our today's the to bears our with dislocations There pick and are accretive choose repayments overall the lending despite many will well to challenging refinancing existing due that volatility, the And come repeating present coming see in uncertainty climate. and softening prudent due and positioned opportunities balance slow scale, will this environment that well pace which in believe believe capital volume from persistent CRE the could of opportunities leverage markets. we we likely and and economic challenging environment. the believe to lies sheet

Now of our decision stock. the reflects over company's Directors Mike. our financial the million I $XXX to strategy enhance Mike, shareholder am would to conviction long-term over before turning We call in authorized this now commitment in business value. common call to Board the and of repurchase outlook our like our addition of to to share believe to I recently that pleased the turn

new balance Thanks, billion quarter-over-quarter Richard. originations repayments. principal $X.X X% outpaced CMTG's unpaid loan increased based and as portfolio follow-on fundings on to

opportunities with capitalize on the attractive beginning at during million well $XXX $XXX number the coupled of balance a of cash quarter, third the investment to of of repayments million, Our quarter. us positioned

in over commitments XX%. $XXX a total X average concentration of as mentioned, points average XXX we commitment As originations million Richard XX% originated loan of investments. we multifamily loan by with a be view across over representing credit our to weighted weighted had spread continues These basis SOFR Multifamily which asset of represented of class portfolio. a largest investments, XX% asset class. our defensive our LTV

with third the million $XXX City, and quarter, several of The construction Salt representing MSA. aggregate quarter marking high-growth below we is well-known loan multifamily expansion loans City, high-rise X LTVs a We markets in during a XX%. originated addition, average Lake the the into sponsor. tower larger loan our our to In Lake at the Salt respected million weighted X Utah into commitments $XXX continued loans for of entry

Salt financing further an than our of for million provided Lake of the existing us exhibited growth. MSAs country it fastest-growing in is at and one asset. while and $XX the for execute target market is credit represents to has us The as MSA diversification. enhancing geographic multifamily The a wage wider strong second portfolio's for City transactions These acquisition loan population, normal spreads opportunities for job

environment benefited the operators higher our interest has borrowers portfolio While have costs. that financing rate impacted we been and recognize by yields,

borrowers' management impact protections mitigate asset carry our and documents monitoring debt like the include service, ability of to addition closely our to ability of structural have controlled a to interest would and pay Jai. the on lender to reserves I designed interest accounts over to borrower's number loan our we These team the to cash rates in rising rate In among service. management now caps, call turn others. debt pay

Thank you, thank you, Mike, and Richard.

the XXXX, distributable and GAAP or quarter million net $X.XX For per $XX.X $XX.X third per share, earnings share. of or income were million $X.XX was our

on dividend million book benefited X share which share, fees repayments. $X this X.X% $X.XX is from quarterly value. current early of Earnings per an Our to is acceleration yield or quarter per $X.XX

and at end, to on the well XXX rates cover increase We rates per benefit and points It the quarter-over-quarter highlight a our a portfolio quarter generate curve as earnings benchmark position growth. that the XX up in $X.XX gains primarily the and earnings. distributable is rates quarter basis would to $X.XX this as forward end, due benchmark portfolio steep of static to quarterly currently $X.XX important based already Excluding quarter, to in losses increase of in impact last point our from basis increased share, net since dividend. are we are and stand

XXX million indicators. above growth was well of as in reserve offset our and profile. CECL worsening as improvement to reserve credit at This approximately increased our general due aggregate macroeconomic stands Quarter-over-quarter, Our by CECL seasoning $X.X by points balance. just net basis principal portfolio

CECL reminder, a X As specific have we reserves. virtually

to Turning balance the sheet.

financing billion maximum billion approximately lines non-mark-to-market. financing warehouse of worth financed outstanding it commitment $X and warehouse XX, that we of note-on-note At we X X subsequent our as with aggregate remains billion had is matched lines under the of loans continue September a is million. to simultaneously weighted property to It both types, equity. under form $XXX the XX%. Despite to and weighted still on of counterparties. secured $X This two, Most noting a average able XX% quarter XX% these be financing bifurcated XX% loans; facilities advance end, leverage net of access target numbers. multifamily into, average We rate This we at advance capital of Xx mentioned, a to our financing. and JPMorgan with market ratio X.X environment, an to were notably, Richard leverage a X.Xx, of with facility markets in financing challenging the maintain up one, and conservative on was the conservative all rate closed can $X on

strong we and had $XXX Lastly, cash million of quarter of to of million on capacity we our lots. comprised end, $XXX liquidity, maintain and warehouse liquidity. continue approved $XXX million At in undrawn

of We operator liquidity. puts position we over believe to both the in a turn today, offensive in call and now billion strong to I $X.X this like be to As for would questions. have the us over defensive.

[Operator Thank Instructions]. you.

Our Fandetti first Wells question from comes Fargo. from Don

Good and the seeing a to if -- of the talk what improve? York office on terms how little bit City Can continuing New in and dividend about in to coverage. you that's hear comments hotel you're

Sure.

little to the in hotel question a we're me in Priyanka like Let turn it and to about seeing talk our take I'd to portfolio. bit general, what

underperform. times the in we've and that we by I rents occupancies of see to that pushback the the think starting are best The buildings we we in we point really aren't Tourism multifamily back the continuing. surprised office strength think are continue at concessions is of on be even many doing and the what in what past, are many continues to well, to buildings at although I seeing and time, the we're weaker economy. And struggling. at that the best despite New out overall as foreigners, buildings be sector to all-time But seeing terms some highs. called see York fact rents think I appears same

And market. a so have and it's have-not

and levels Sunbelt We rates are below the in below high-growth continuing see to utilization pre-pandemic utilization rates well markets. well

work York going convert that are the opportunity we to New will there -- of And about work and I So concerned in to something create work whole types out have them think communities New market be feel stretches be anymore. is have how will transformation I think not to to long-term need in to to we're figure that York is the that office office buildings going we remain market -- York. vibrant going to across people here going be to government make to ongoing we as types that and collaborative -- of to are to a the obsolete York New lot certain just is is that we to going that of where a to or and as are going not live, people and make down as time. with is that the office City buildings XX-hour where And where going take a that is the and sense tear certain there New

you're in market and do about office hotel. you York, in New little to about seeing much a what So Priyanka, concerned want talk portfolio? we our are around the constructive we're more bit

in the -- Don, quarter was hotel our strong. portfolio, Yes. third we Thanks, very I mean Richard. REO Hi

think We performed New well the across sector seeing I that on York. we're line. in hospitality very top the

hospitality think, new really XXXX but throughout by third back. had Occupancy also fall come institution, has of quarter, driven We hotels ADR corporate above see at one interestingly, some of block largely retain level I leisure of transient group a quite rooms our the financial large and reset large demand, the the a we're starting during level. period. to being was really a strong

So excited are to is that back really premium. at selling huge compression the last we're rooms see and

encouraged of performance So we're portfolio. by very underlying the REO the

Shane from turn We to Rick JPMorgan.

in guys terms essentially X positioned market well the leverage ways a you have you fundamentals. have given and you how And of some your Look, at low that I crossroads in we're think and are, highlighted choices.

grow Obviously, you buyback. can do the potential on the leverage or on increasing the do can light this you think you moment how liquidity increased at extension asset of duration. choices? assets, you think X You shares repurchase time? can How hoard about of you business in And authorization about those in

first. question last the take me Let

X.Xx leveraged today And to about side, the deploy like growth, In other then said of because tick honestly. On around we've leverage leverage have selective conservatively we or a of expect times, buy in shares, hold liquidity assets, recognize max single and debate, we to being we buyback, conversation very day your invest returns would it's And the very liquidity. you asset the liquidity, strong past, assets, add we are at in a also internally, Xx. every to X.Xx. question do the we up Richard, are where we whether back keeping in whether we these importance we But like we capital are to the today. on? and

on we'll deem gives opens would that also it's be holding relates -- sure we But And we're get we going making and extra we if I work. for We're say the defense, be increase X do for to of the market where are a shares, little If trying to that how offense we to in If shares. from our the sectors. Rick, risk-adjusted put capital Yes, leverage cash. I want repayments bit around it back we back about to opportunistic these that... outsized as matter opportunistic likely believe to buy money market prudent both us up and just we returns, buy much shares to we more a accretive all be we're what us think to that. dependent and

the about answer those think constant it. it's I team discussion It's no areas. a It's a be to day-to-day question. opportunistic just great and analysis amongst to X in really So how perfect

mean in what's you just the put sense was that should you for -- opportunities gone to it's hours in hard. that the and dollar in same incremental the invested about abulent screens makes Or -- are market? it's what at the the and today compelling we've terms about so next yesterday out have? markets constructed the you opportunity in looking Thank When Today it be do you. are into sure so back of guys. discouraging Yes. last the the I he managing currently, there it's portfolios you I'm through it Look, there, -- Think is dollar XX what your is our think out incremental already

we're the like we're at in staying what again, portfolio portfolio something mean, the active we like. around market our what risk-adjusted returns look I our debating portfolio, returns can looks that's those so in what's day. look And and that what our diversifies every and

So maximize the it's -- for again, an of it's shareholders. a to everyday that we're job seeking kind value

appreciate understand the on and competitive look, sort Okay. the within we really It to of it easier clarity the And risk landscape. makes lot position portfolio a thematic the again, you construction.

for restating you thank that. So

next from Our question Securities. Steve Delaney from comes JMP

stock your morning. is stock up allocation, buyback and XX% your decision Well, this

be say nice So that. view you there that to just revision in a near-term may it's I how but see. jest, in

in economic the struck period. thing And strikes the time? that terms the to event event this me people probably mentioned, City this of about tightening. the due and impact that through your March some, you. about don't thoughts and XXXX, in and or since you in Mike see you months be banks mindset rates I new in the of lending XXXX, concerned the spring a thinking from March for are of were billion Jai, you, was facility like think And maybe your banks York banks of XXXX, real the gone views by on credit would backing companies estate bank's uncertain as pandemic. I I has posture off. most yourself. to or a of and to I about be me is looking report time, the whoever favorable as economy, to to the Fed's appreciate I'm $X kind generally think at mean, Richard, last we've this talking what to JPMorgan, unstable or been of back caused about are New And XXXX structure to it and seem why people hanging from the the Richard Curious there maybe the couple what very the simply really

have all think this. I will X thoughts different slightly of us on

the doing to it -- more to that And by how want it lot what are a capital them as doing are has they put careful be want healthy a business environment we've with. terms to they are to only well, occur And like as -- think JPMorgan, but being with want rates And their to select at think their start they ours. does is who demonstrated very about I'll a have we business business. lot that them a who who capital. saying So me to acted do relates picking that of they're more. want banks Have environment in group. I And and they for for out with to a do not higher business I

all would add are I not that also Steve, open. banks

banks in have space Some are this to not banks us said anymore. lending they're -- some just

that also capital. have to favorable in we access So to are spot but continue is occurring, where we a --

also lines. for with would to money sentiment, to and banks continue add but continue banks, across of counterparties Jai's characteristics our I the that Richard the size right agree mean right financing projects regional I to I see sort be us business active some with completely the for of the center we

relationship and regional oriented banks is money on difference center particularly very sort between focused of really their banks, and borrower who is. the there that those So the are a

couple So we've the that's last years. seen here an interesting in development of

given looking quality be or maybe was there could guess, with sort of to next we to obviously, this little should in And so is just $XXX billion wider a opportunistic high third portfolio, a spreads. million you a that. the going the that, thing. mean, chunky there anything is the you expect continue lending the a I quarter This X portfolio Or $X that had of origination quarter. And if in about just have good chunk? mid over and But sort quarter time opportunity? I find quarters? have one big at a large strong capital final into Is going or quarter, you Appreciate deals.

a in really And across with balance So X into quarter, to chunky sheet there's I probably the everyone the really or position. we think investments. of that little nothing up has bit set particularly and came a was strong strong third liquidity market that quarter the transaction and up bit, we little void. a fill the there position that has seen And volume were and step different back a pulled

has very the we've the happy down very the or but But we opportunities we So quarter. invest, afforded back course call [indiscernible] where expect various for of balance market. to the do throughout goes been a volume advantage bit. a to put think of slow company opportunity fourth test during quarter I to us the internally to the this we're about over balancing strong we're on the take is our positions the that whether continuing in sheet talking a what more of with third what to that's little that bit course little

now to Rahmani Instructions] We from turn KBW. [Operator Jade

about Can you maturities? but portfolio. else that's slide just pay about And touch $XXX what the upcoming million. Is couple you could the credit talk those Anything anticipate on in off? that expecting The deals, a of sure to are in you you chunky I'm risk shows XXXX? loan

It's we extended take it's our about million loans. are Yes. repaying it's loans and UPB have slug Jade, $XXX or Generally, small have -- maturities -- X a I'll it's in of fairly less that. XXXX. Priyanka. than fully and that -- of that across

need at point our we in good that in really touched time. borrowers borrowers. this were We have to the some position Others our negotiation the place. for we We are be want going sort to but good for with on in going pay Mike to feel worst risk in exit So think, And protections those, of -- borrower. are be hoping of but are defend -- earlier, capital all with off. to basis the of that preparing and best the a about our I the probably some structurally, going to and

as of So one-off the look don't I any upcoming, have concerns. maturities that kind at are I

single-family the this how lending, of sectors week, On been hard but just you've but lenders, active, Broadmark, in you're know I this not having for there? type others build-to-rent in rent you the names and space not about money also feeling reported engaged are are where exact in dramatic some outlook which a course, of time, supply. deterioration that the And homebuilders showing rental same excess difficulty in have seen are some credit. pretty the terms of reeling single-family are deterioration At of some in and NOI.

want check in on I could just And if contextualize how it? doing? is you that size So just also to the of portfolio

Sure, Jade, it's Kevin.

good in question. space. you're very the homebuilder obviously tracking what So noticing We're

both ways. I think cut can that

I markets actually trafficking owners. rental we've is certainly the that in trajectory robust throughout SFR little most more single-family think larger, And to a Home that well-capitalized been a in on fundamentals of in. bit that affordability the and can the country. opportunity space for create leading institutional downward is fairly

lot portion Within entire still it's well. small that's presold of the throughout primarily invested that a large portfolio balance and our sheet space. portfolio a institutional developer a to the it's that It's CMTG SFR development, is one under relatively as of been portfolio, in

looking and well. we've as next. with So materially de-risked sale course the we're some the communities. that that -- a lease-up our of we forward has of delivering a schedule also at position quite But of are year is are But here this happy and throughout there been there initial units the of

SFR not note I evolve is that think more that will important on it's that there think than to thing built-to-rent the to our I build-to-rent more and and SFR the loans a tied probably been one which clear And yet space space. market are closely between SFR, Just has recognize. much that time over multifamily is people distinction the

demand are an effectively so of Phoenix, bit of market. And like where see multifamily of in it's we little for the And we operates building and a multifamily. this the horizontal product extension a lot

more exhibited can strength of the market or products. multifamily be And so in and pitfalls some clearly of the exhibited be clearly these

of clarify, to just equity mentioned Phoenix our Jade, the Richard the side that's business. development in

on that, clear on be to MPT's just portfolio. So not

CMTG? What's exposure in the dollar of

disclosed It's the supplement. $XXX million, earnings on Page of Page Jade. around XX, XX We've its that on

That's total construction. these is that just X% UPB under now all our quite are of commitment, given right small, our

session. any concludes and question-and-answer Ladies gentlemen, over to back closing I this the now for conference remarks. to would Richard our like turn Mack

We I that it's thanks, really last questions the that and And feel that with as think forward, up quarter. per think the difficulties good themselves market we Thank opportunities. those our come going about you, joining. we're to be and going the opportunities to a for in all, the present to, one everyone, those challenge, challenges, manage with

stock that expect as market So we're we're a go ability plus. to as about back issues great to continue to positioned more our pretty access year through excited work fairly it. this going deal and we'll have portfolio, probably leverage, of in the bit the we'll through and liquidity, with well forward ability that over to we've next we demonstrate do been dislocated buy and our the We think to to able increase to flow the ability disruptive

look we speaking to all thanks, you forward in and our next soon joining, for call. quarterly So to everyone,

has call participation. you concluded. like We'd now for thank your Today's to

disconnect your now may lines. You