CMTG Q3 2026 earnings call transcript, November 4, 2026

Hello, everyone. Thank you for joining us and welcome. To the Claris Mortgage Trust third quarter 2026 earnings.

After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press. Star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference call over to J.D. Siegel, Executive Vice President of Claris Mortgage Trust. Please go ahead.

Thank you. I'm joined by Richard Mack, our Chief Executive Officer and Chairman, Mike McGillis, who serves as President, Chief Financial Officer and Director, and Priyanka Garg, Executive Vice President. Prior to this call, we distributed CMTG's earnings release and supplement. We encourage you to reference those documents in conjunction with the information presented on today's call. If you have any questions, please contact CMTG Investor Relations. Please 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 discussed 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 the 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 their nearest GAAP equivalents, please refer to the earnings. Supplement. I would now like to turn the call over to Richard. Thank you, JD, and thank you everyone for joining us this morning for CMTG's third quarter 2026 earnings call. Despite

improving real estate fundamentals characterized by limited new construction, a resilient economy, and healthy levels of capital-seeking deployment, macroeconomic headwinds continue. As Federal Reserve monetary policy is being marshaled to manage inflationary pressures. This is creating a challenging real estate capital market environment as the equilibrium between buyers and sellers remains in flux. These headwinds are not new. They have characterized the market since 2023. What is perhaps new is the persistence of the trend. At CMTG, we have managed our book over the last seven quarters. Under the expectation of a higher for longer interest rate environment. And we have made meaningful progress, better positioning us to face the most recent rate moves and allowing us to continue executing our strategic priorities. Solving watchlist loans, repositioning our REO assets for disposition, and deleveraging the balance sheet. This is what it takes to be able to make other accretive capital allocation decisions, such as buying back our stock and getting back to originating investments, with the ultimate goal of reinstating our dividend. We believe the hard decisions that we have had to make over the last seven quarters will ultimately be recognized in greater shareholder value and will reduce the impact of the market's most recent rate reset. To put this in context, since January 1, 2025, we've been highly focused on turning over the portfolio and deleveraging.

The balance sheet. We have during that time resolved $3.8 billion of loans, including $2 billion of watchlist loans, reduced indebtedness by $2.9 billion, and refinanced and extended the maturity of our secured term loan. To 2030, providing CMTG with the prepayment flexibility and ample runway to execute our plans. As a result of these efforts, our balance sheet metrics are stronger. With $143 million. And with our net debt to equity ratio down to 1.5 times after adjusting for fourth quarter loan resolutions and the leveraging of $269 million. Despite this tangible progress. The difference between our stock price and our book value of $8 and 49 cents per share continues to present a disconnect that we believe does not reflect the level of progress we have made. Increased granularity, transparency, and de-risking of our balance sheet. Page four of our earnings supplement attributes our book value across various components of our net assets, highlighting the significant portion of our book value that consists of cash, performing loans, and REO assets. Mike will walk through this in more detail. But in analyzing the balance of our book value, it is important to note that last quarter we reduced the carrying value of a number of our watchlist loans and REO assets in order to reflect the higher returns being commanded by the market and the lower resulting clearing prices, given the current interest rate environment. The markdown

we took in the second quarter was a painful but important step and reflects our intention to move on from these assets as pressure on values builds. Well, there is always ongoing risk. We believe that we have meaningfully ring-fenced our exposure. I would also like to point out that over the last seven quarters, negative credit rating migration has been minimal. Of the four loans downgraded to watchlist during that period, three have already been resolved. As I stated last quarter, we have made difficult decisions over the last two years. And while we still have work to do, we have reduced the portfolio to just 21 loans and eight portfolio investments. With this limited number of positions, our book value is more transparent and less variable. Today, Mike is going to walk you through the portfolio slowly and carefully. And give you the detail behind our book value. We are doing this in order to again, try to demonstrate how undervalued we believe our stock to be. The bottom. One line is that because of our decisive actions, we believe we see the light at the end of the tunnel and we remain steadfast in executing on our strategic priorities. This is what has been and will continue to be necessary to get. to the other side where we can capitalize on what we believe will be an increasingly attractive investment environment over time. I'll now turn the call over to Mike. Thank you, Richard. For the third quarter of 2026.

CMTG reported a gap net loss of $0.10 per share and a distributable loss of $0.08 per share. Distributable loss prior realized gains and losses was $0.05 per share. We remain focused on executing the strategic priorities Richard discussed. During the third quarter and through November 2nd, we completed another $702 million of loan and REO resolutions, including full loan repayments of $492 million, resolutions of $186 million of watchlists. Loans prior to principal charge-offs and REO sales of $24 million. Proceeds from these resolutions were used to reduce financings outstanding by $599 million, including $200 million. $31 million of deleveraging payments. We previously reported on four loan resolutions completed in July. These included full repayments of two loans totaling $223 million of UPB as well as two watch loans. The first watchlist loan resolution was the sale of a San Francisco office loan, which had been on our watchlist since early 2022 for gross proceeds of approximately $71 million. The second watchlist loan resolution was the sale of a San Francisco office loan. The second was the discounted payoff of the Salt Lake City multifamily loan for gross proceeds of $70 million. Subsequent to quarter end, we were repaid in full on two hospitality loans totaling $200 million. $269 million of unpaid principal balance, one in New York City and one in Nashville. Year to date, we have resolved 12 loans totaling $1.3 billion of UPB prior to principal charge-offs, including seven...

...notch list loans, which were resolved at approximately 79% of PAR and receive partial loan repayments of $33 million. Since the beginning of 2025, we've resolved... ...33 loans, totaling $3.8 billion of UPB, including 18 watch list loans, which were resolved at approximately 80% of PAR and have received partial loan repayments of $100 million. Our watch list loans have come down steadily from $2.8 billion of UPB, or $2.7 billion of carrying value at year-end 2024, to $2 billion of UPB. Or $1.7 billion of carrying value at year-end 2025, to $1.6 billion of UPB or $1.1 billion of carrying value today. Following resolutions subsequent to quarter-end, our portfolio now. Consists of 21 loans with $2.8 billion of UPB or $2.3 billion of carrying value and eight REO investments with a total carrying value of $701 million. Earlier this year, we commenced lender-driven price discovery and sales processes on eight assets representing $860 million of loan UPB and REO carrying value. Since then, we have expanded these to include one additional loan with $127 million of UPB and a portion of our New York City REO hotel portfolio. We've completed $183 million of these sales, including one risk-rated five loan and two multifamily REO properties. And we've entered into three separate purchase and sale agreements, each of which became binding in October with nonrefundable purchaser deposits and have near term expected closing dates. Two of the

purchase and sale agreements are to sell a risk rated five multifamily loan and a risk rated five unencumbered office loan for approximately $311 million of combined gross proceeds are approximately 97% of their combined September. 30th at quarter end we did not reduce these loans carrying values which were based on the estimated fair values their underlying collateral to the anticipated sale proceeds. If the sales are completed we expect them to result in incremental combined losses of approximately 10.4 million dollars or about seven cents per share in the fourth quarter reflecting discounts accepted in consideration of results. Solving these loans within this time frame. The third purchase and sale agreement is to sell two of the seven hotels within our New York City REO hotel portfolio for approximately 45 million dollars. Reflecting a slight premium to the current allocated carrying value. We expect this sale to close by the first quarter of 2027. Turning to portfolio credit. We had no negative credit rating migration and no additional loans placed on non accrual status. As a reminder, last quarter, as a result of our lender driven price discovery and sales processes. In our goal of turning over the portfolio, we downgraded four loans from risk graded four to risk graded five, including one loan that was repaid at a discount to UPB in July. Increased specific. Reserves on three loans and reclassified two REO assets to help for sale. One of which was sold in September. These actions reflected real-time market feedback on purchaser return thresholds, which remain elevated in the current rating.

Our specific CECL reserve was $516 million at quarter end, or 33% of related unpaid principal balance, and was relatively unchanged from last quarter. We believe these reserve levels remain appropriate, given our proactive actions last quarter, and our objective of turning over the book in the near term. As previously noted, the watchlist loans we have resolved since the- beginning of 2025 have incurred a loss of approximately 20% of their unpaid principal balance, compared to the 33% specific reserves on UPV we carry today. Although we- recognize that each of our remaining watchlist loans has its own set of circumstances. Our general CECIL reserve also remained relatively unchanged quarter over quarter at approximately $51 million. As a percentage of UPB of loans subject to the general CECIL reserve, it increased from 2.9% to 3.4%. Turning to REO, during the quarter... We sold another one of our Dallas multifamily REO assets, originally foreclosed upon in July 2025, for gross proceeds of $22.5 million, in line with its Q2 held for sale carrying value, including... Sale completed in the second quarter, we've sold two multifamily REO assets this year for $71 million of gross proceeds. Our unencumbered mixed-use REO asset remains classified as held for... as we continue to work towards a resolution. Our multifamily REO portfolio's top-line operating performance remain generally in line with the second quarter, although continued selective capital...

investment and recent sales of more profitable properties caused net operating income contribution to decline. We remain focused on positioning all of these assets for sale in the near to medium term. Our New York City REO... Hotel portfolio's operating performance was in line with the prior quarter and improved from the same period last year, contributing three cents per share of distributable earnings, an improvement of one cent per share compared to the third. Quarter of twenty twenty five. Turning to the balance sheet during the quarter, we reduced financing outstanding net by approximately three hundred thirty million dollars, including one hundred million. Deleveraging payments. Our net debt to equity ratio declined to one point seven times from two point out times at June 30th. As shown on page nine of our earnings supplement, following loan resolutions and additional net financing. Payments of $269 million subsequent to quarter end, including $131 million of deleveraging payments. Our net debt to equity ratio has declined further to one point five times on a pro forma. Liquidity at quarter end totaled $147 million, including $134 million of cash. As of November 2nd, liquidity was $143 million. Funding needs related to our loan portfolio are minimal. Net of in-place financings and loans where funding conditions are not currently met, our unfunded loan commitments are only approximately $3 million.

In addition, our unencumbered asset pool, totaling $509 million of loan UPB and REO carrying value, continues to provide financial flexibility as we execute sales of certain... ...which we believe will generate meaningful liquidity, support, or capital allocation priorities, including deleveraging our secured term loan, which is our highest cost of capital. Subsequent to quarter end, we fully deleverage... ...a risk-graded 5 multifamily loan with $155 million of loan, UPB, and related financing of $48 million. As shown on pages 4 and 17 of our earnings summary... our book value at September 30th was $8.49 per share, the components of which we have attributed as follows based on carrying values. 93 cents per share of cash... ...which on its own is about 80% of our current stock price. $4.04 per share and performing risk-rated two and three loans, net of allocated general CESOL reserves and related financing. ...and $1.99 per share in REO investments, net of related financings, which we believe reflects achievable resolution levels. The remaining book value includes $4.10 per share in watchlist loans, net of... ...specific and allocated general CECL reserves and related financings in our equity investment in a lending joint venture. And $0.90 per share of other assets net, offset in part by $3.00. $0.90 per share for our secured term loan principal value. Although there may be further pressure on book value as we continue to resolve watchlist loans, we believe significant value remains in...

...particularly since the book value on watchlist loans already reflects a 33% specific reserve on UPB. As Richard said, we've made significant progress since January 20... ...in turning over the portfolio and de-risking and strengthening CMTG's balance sheet to position it for its next phase. This quarter's activity reflects our continued focus on our state of...

...priorities, resolving watchlist loans, repositioning our REO assets for disposition, and deleveraging the balance sheet. I would now like to open the call for questions. Operator? We will now begin the question and answer session. If you would like to ask... To ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile.

The Q and A roster. Your first question is from the line of Tom Catherwood with BTIG. Please go ahead. Excellent. Thanks. And good morning, everybody. Mike.

And that's direct financings on those assets. And then as we sort of resolve non-accrual or under-earning assets that are unencumbered, proceeds from those activities, the way we're thinking about it, can be used to pay off, pay down. The term loan financing or various assets. Once we get to those, that is an interim step that- get on a breakeven core operating performance level. It's important to note the interest expense represents on a cash basis about 10 cents per- share per quarter on the just the term loan itself so that is an objective is to put put that in a rearview mirror.

Got it. And last one for me, maybe going back to my comments you made about the multifamily assets that you're holding REO. If I heard you right, I think the commentary was that. You know, operating performance was roughly flat with 2Q, but there was a little bit of a drag on NOI. In general, there's a lot of fear in the investment market right now around Sunbelt multifamily. Talk about the issues that you are seeing there. Is it demand related? Is it that there's just the oversupply continues to drag on rents? Or is it something more structural that's kind of impacting at least the assets and the markets where you own?

Hey, Tom, it's Priyanka. I'll take that and then Richard might want to jump in after. So first off, I would just want to highlight that we identified our issues early. We identified the problem loans, you know, many quarters ago. And so we've been very focused on resolving all of those, particularly on the multifamily front. We made a concerted effort to have a financing plan in place where we could hold REO and hold it longer term and create value over time, which is exactly what we've done. which has allowed us to dispose of two REO assets year to date already, and we continue working down that road. Our remaining multifamily exposure that we've, you know, that we have not foreclosed on or is not on our. Watchlist loan watchlist is very minimal, and each of our loans on our watchlist, we have a very specific plan. So overall, I would say we've really ring sensed our exposure on multifamily because we were early to identify the issues. On your your point on what's really driving the challenges, I think it's it's it's a couple of different pieces of one. Some markets are clearly just oversupplied. Even though, you know, nationally, we're under we're undersupplied, but certain markets have have a tough going. I think, secondly, there is a real pressure on day to day household. They can come at the the the workforce housing class. They're they're they're not renters by choice. They're really selecting where they're going to use their dollars. Is it paying rent? Is it other, you know, paying for gas to go to work? I think that.

That is a real real issue. And then third is just obviously as it impacts value, the rising rising rate environments have not been helpful or that where they continue to elevate a great environment. But again, as Richard said in his opening remarks. We've really accounted for that. And we think that's reflected in our carrying values, which is why we've been able to dispose of two assets near carrying value to date. And we're certainly working on the remainder.

I would just add very little, Priyanka. That was excellent. The southeast and southwest markets are still overbuilt, but the demand story is very strong. On the other hand, as Priyanka mentioned, a workforce housing is going to continue to struggle here as in this inflationary environment. Part of what is impacting

these renters also is a lot of fear of ICE raids and other things in some of these workforce housing. To the extent that the election reduces the fear of deportations, I think that could be positive as we see kind of job creation really taking hold and in migration in the southwest and southeast. But clearly elevated rates are not helping and it's it's going to take some time to soak up the supply. But the good news is right now at least the economy. Strong. We are generating a lot of a lot of jobs, particularly in the southwest where we have a large equity presence. We can see industrial demand for manufacturing really picking up. And we think that's going to turn into incremental demand for for for housing because home. Construction and purchasing is is a pretty difficult is pretty difficult in this high interest rate environment right now. Oh, appreciate the thoughtful answers. Thanks, everyone. Thank you. Thank you, Tom. Your next question is from Jade Romani with KBW. Please go ahead. Thank you very much. Can you give some color, maybe rough?

Yeah, Jade, it's Priyanka. I think that's a really, really hard question to answer. Because, as we all know, we're operating in really choppy waters, uncertain environment. We remain very focused on turning over the book and resolving watch list loans. I think we did a real. Really nice job of demonstrating that on pages two and three of our earnings supplement and how much work we've done. We've demonstrated we're not. We'll make the hard decisions. We'll meet the market where it is. And that is. Further bolstered by these two contracts that Mike talked about where we have hard deposits on to watch list loans and we expect those to close. So that said, we're in an environment where, you know, buyers are going to make decisions and we're going to evaluate every. Opportunity on its own and see if it's a creative to hold if we think more value can be created over time or if it's better for our shareholders to meet the market clearing price. So I think it's a really hard question to answer, but we are very. focused on meeting the market, making the hard decisions and then when you look at the. The performing part of the portfolio.

There's about I think. You know, significant amount of multifamily loans still outstanding. Could you give any color as to what the maturity schedule looks like? And also, you know, if the risk three multifamily loans. You know, we'll face any pressure because I was looking at a report earlier today that showed, you know, a significant number of floating rate based maturities in multifamily in the coming year. Two years have, you know, debt service coverage ratios that will make refinancing very challenging. So even though they're still risk free rated loans, just wondering if that could be another source of pressure the company can face next. Yeah, Jade, good question. We, like I, you know, I want to reiterate, we were very early in identifying all of our issues. And so the multifamily loans that we thought were at risk where there wasn't. Vetted equity for the borrowers to protect and loans that were not performing. Those are already reflected on our watch list. So if you go through our loan table, what you'd find is there's only two multifamily loans in the bucket of risk. Rated two and three. And those two loans, we feel very good about our ability to get fully repaid. There's process fees underway. We're focused on it, but we really think we've reinforced that risk and those are appropriately rated in the two.

And then just on the earnings outlook, you know, considering processes you have in place, is there a reasonable expectation for what, you know, the magnitude of loss could look like for the next two quarters? Do you think it'll be similar to what we saw this quarter? Or perhaps, you know, a bit lower than that, driven by an increase in the amount of assets on watch list that you look to resolve?

Jade, why don't I take a shot and then I'll turn it over to Priyanka so that the two, the two loans that are under hard contract sell right now.

expect a very modest loss relative to carrying value in Q4 on those. And I would just echo Richard and Priyanka sentiment. It's a dynamic environment. We feel like our carrying values are appropriate, but if we're in a situation where we've got to evaluate, you know, moving out of an asset at a certain price, if it makes sense, we'll. We'll meet the market and and get it done, but it's. It's it's it's hard to predict what what the ultimate outcome will be, but I think we've demonstrated that we've been able to out of these assets at reasonable. Levels relative to carrying value and UPP related to our existing. Yeah, it might go ahead. Sorry, just two quick data points specifically. We've said them before, but I just want to. I like them in this context. The carrying value of our watch list loans right now is 70% of UPV. That's in the $4.10 that you see on page four of our earnings supplement that's being held. The $4.10 per share is being held at 70% of UPV. And the second point I would make is those two contracts are at 97% of the carrying value. So very, very modest discount, you know. We're going to make the hard decisions if we need to.

Thanks very much.

Your next question is from Chris Muller with Citizens Capital Markets. Please go ahead.

I'll start. And then maybe Mike will want to jump in. So thank you for that question, Chris. It is a tough question to answer because as we all know, and as we've seen in the sector generally, specific reserves move. And so it really depends on where you are pegging the actual transaction and to what prior quarters carrying value you're comparing it to. That is why we made a very conscious decision on page two. Of our earning supplement to really peg it to the UPB. So I think the way to think about our reserves today is we, you know, historically using all the tools in the toolkit, loan sales, DP. OPOs, short sales, we've achieved 80% of UPB. And right now the remaining watch list that we're carrying, we're carrying it at 70% of UPB. Doesn't mean we're going to get to the same outcomes, but I think it's, you know. It's an important metric and we think that's the right one to focus on as opposed to percent of carrying value because the carrying values do move when we get new information. Mike, anything you want to add to that? No, I think I think that. That's a great point, Priyanka, and I'll just highlight that that that is a reflection of pretty steady resolution activity over the course of the last seven plus quarters on about two billion of watchlist loans, so there is. This variability on a loan by loan basis, but as outlined in the in the bottom left chart of the earnings supplement, you know, you see it's pretty.

Consistent quarter to quarter when you look at it. Yeah, got it. And I guess on the specific reserves, how much of an impact does the rate environment have on those or move them around? We have the 10 year down roughly 35. The basis points from quarter end. So could those move, I guess, those specific reserves move lower going forward or are they more static and you guys don't move them around all that much? So we covered a little bit of this. In our opening remarks, but, you know, we've anticipated a higher for longer environment. And so while higher rates are not helpful, we. I think we've baked in a lot of the bad news in the rates already. Rates can go up a lot higher and, you know, we might have to think about readjusting. But I think we've we've been so proactive around this that we feel like our marks are in a pretty good place. But look, anything can happen. The capital markets could decide rates are going higher. You know, we're going to we want to mark down assets more again. But I think we've tried to be ahead of this and tried to be conservative as we look forward.

Sorry, just one specific data point on that, Chris, as you think through that is we did take, you know, meaningful reductions to book value last quarter and these two purchase and sale contracts where we have hard to. It's from buyers are at 97% of that number, even though the, you know, the actual rate hike occurred after. So we were really thoughtful about the higher for longer rate environment and really tried to reflect that in our carrying values when we made. Meaningful shifts two quarters ago. Great. Got it. Appreciate. Appreciate you guys taking the questions and nice to see the market rewarding all the hard work you guys have done. Thank you. Thank you.

Your next question is from Marisa Lobo with UBS. Please go ahead.

Okay. Thanks, Marisa, for the question. I'll take it. We feel good about it. I mean, we're always very thoughtful. About where we're going to hold assets and carrying values. These two assets that we're under contract on are the two that offer the most upside to potential buyers. And so we wanted to separate those out and then have... You know, as we monetize the other five remaining assets, we expect it to hit carrying value. But, you know, I'd be remiss if I didn't highlight again, we're operating in a very choppy, uncertain environment. But we think we've...

Okay, thank you. And on the New York land asset, can you walk us through what needs to happen to create value from here and what additional investment that requires? On the land REO asset? Correct, yeah. Yeah, sure. So that is, you know, a couple of things that we should just state up front. It's extremely well-located land. It's very attractive. Purely by location, there's a number of different business plans that can be executed. And so what we are trying to do is really hone the analysis around what the optimal business plan is. Ultimately, our goal is to sell the... land with a development plan, you know, a recommended development plan in place. And so that is what we're working on. That's not terribly capital intensive, but we're just being very thoughtful about it as many people like. We know that the sponsor Claro's macro estate group is a developer at heart and we we have the capabilities to be evaluating that and that's what we're doing right now. Got it. Okay, thank you for taking my. I would just highlight that that piece of land is unencumbered. There is no debt against it. So it's another part of our unemployment. Thank you. Thanks for the question. Concludes the Q&A for today. I will now turn the call back to Richard Mack for closing remarks.

I want to thank everyone again for joining us. Today, we've tried to demonstrate both the progress we have made and the magnitude of the disconnect between our book value and our trading value. We urge you to look at our earning supplement in detail. Again, we have a moment. This effort has been difficult, but we believe that our metrics today present a compelling investment opportunity, and we believe that the market is already taking notice and will continue to do it. We thank you again, and we look forward to talking to you at our next earnings call. Thank you.

This concludes today's call. Thank you for attending. We may now disconnect.