Claros Mortgage Trust Inc (CMTG) (Q3 2026) Earnings Call Highlights: Deleveraging Momentum and ...

Negative Points

• Claros Mortgage Trust Inc ( NYSE:CMTG ) reported a GAAP net loss of $0.10 per share and a distributable loss of $0.08 per share for Q3 2026.

• The company expects incremental losses of approximately $10.4 million, or $0.07 per share, in Q4 2026 from two loan sales under binding agreements.

• Non-accrual loans and associated leverage cost about $0.06 per share per quarter, and interest expense on the term loan is about $0.10 per share per quarter on a cash basis.

• Multifamily REO assets face challenges from oversupply in certain markets, pressure on workforce housing renters, and elevated interest rates, which may impact valuations.

• There is potential for further pressure on book value as Claros Mortgage Trust Inc ( NYSE:CMTG ) continues to resolve watchlist loans, with specific reserves at 33% of related unpaid principal balance.

Q & A Highlights

Q: With two loan sales under binding agreement, including an unencumbered office loan, how does CMTG plan to use the proceeds? A: President, CFO and Director Mike McGillis said proceeds will primarily go toward continued deleveraging, given the secured term loan's high cost of capital. He noted the sales free up significant capital, but the near-term focus remains on reducing balance sheet leverage until CMTG is comfortable pivoting to more accretive uses of capital.

Q: Has CMTG reached an inflection point in net interest income, and what is the potential earnings path from here? A: McGillis said non-accrual loans and their associated leverage cost roughly $0.06 per share per quarter, and eliminating that drag is a key objective. He added that interest expense on the term loan alone runs about $0.10 per share per quarter on a cash basis, and putting that behind the company over the medium term is a goal that would help restore better-than-breakeven core operating performance.

Q: What is driving stress in Sunbelt multifamily, and how has CMTG ring-fenced its exposure? A: EVP of Portfolio and Asset Management Priyanka Garg said CMTG identified problem loans early and built financing plans to hold REO longer term and create value, enabling two REO sales year to date. She cited oversupply in certain markets, pressure on workforce-housing household incomes, and elevated rates. CEO Richard Mack added that Southeast and Southwest markets remain overbuilt but demand is strong, and workforce housing will keep struggling in an inflationary environment.

Q: Where does CMTG expect the watchlist to reach by year-end or early 2027? A: Garg said the question is very hard to answer given choppy, uncertain markets, but CMTG remains focused on turning over the book and resolving watchlist loans. She pointed to two contracts with hard, nonrefundable deposits on watchlist loans that are expected to close, and said CMTG will evaluate each opportunity on whether holding creates more value or meeting the market clearing price better serves shareholders.

Q: Could risk-rated 3 multifamily loans face refinancing pressure from upcoming floating-rate maturities? A: Garg said CMTG was early in identifying issues, and at-risk multifamily loans without embedded borrower equity are already on the watchlist. She noted only two multifamily loans remain in the risk-rated 2 and 3 bucket, and CMTG feels good about full repayment on both, with processes underway and appropriate ratings.

Q: What magnitude of losses should investors expect over the next two quarters? A: McGillis said the two loans under hard contract are expected to produce a very modest loss relative to carrying value in Q4. He said carrying values are appropriate but CMTG will meet the market when moving out of an asset makes sense. Garg added that watchlist loans are carried at 70% of UPB, or $4.10 per share, and the two contracts are priced at 97% of carrying value, a very modest discount.

Q: How do completed resolutions at roughly 80% of PAR compare with the 33% specific reserves currently held? A: Garg said specific reserves move over time, so CMTG deliberately benchmarks recoveries to UPB rather than carrying value. Historically, using loan sales, discounted payoffs and short sales, CMTG has achieved about 80% of UPB, while the remaining watchlist is carried at 70% of UPB. McGillis noted the 80% recovery reflects steady resolution activity on about $2 billion of watchlist loans over seven-plus quarters, with quarter-to-quarter consistency in the aggregate.

Q: Could a lower 10-year Treasury rate reduce specific reserves going forward? A: Mack said CMTG anticipated a higher-for-longer rate environment and believes much of the bad news is already baked into marks, though further rate increases could force additional markdowns. Garg added that CMTG took meaningful book value reductions last quarter, and the two purchase and sale contracts with hard deposits are at 97% of that reduced carrying value even though rates rose afterward.

Q: What is the read-through from the two New York City REO hotels under contract above carrying value to the remaining hotel portfolio? A: Garg said CMTG feels good about the outcome and selected the two assets offering the most upside to buyers. As CMTG monetizes the remaining five hotels, it expects to hit carrying value, while cautioning that the environment remains choppy and uncertain.

Q: What needs to happen to create value from the New York land REO asset, and what additional investment is required? A: Garg said the land is extremely well located with multiple viable business plans, and CMTG is determining the optimal plan with the goal of selling the land with a recommended development plan in place. The process is not terribly capital intensive, and CMTG can leverage Mack Real Estate Group's development capabilities. McGillis noted the land is unencumbered by debt and part of the unencumbered asset pool.

Q: How should investors view the gap between CMTG's book value and its stock price? A: Mack said the disconnect between the $8.49 per share book value and the stock price does not reflect the progress made in de-risking the balance sheet. He highlighted that book value includes $0.93 per share of cash, $4.04 per share of performing risk-rated 2 and 3 loans, and $1.99 per share of REO, with watchlist loans carried at a 33% specific reserve on UPB, which CMTG believes leaves significant value.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .