Claros Mortgage Trust, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 20, 2024. The filing includes fourth-quarter results but is an annual report, not a standalone quarterly filing. CMTG is an externally managed commercial real estate finance REIT focused on senior and subordinate loans on transitional U.S. properties.
Financial performance and position
| Metric | FY 2023 / Dec. 31, 2023 | FY 2022 / Dec. 31, 2022 |
|---|---|---|
| Interest and related income | $697.9 million | $470.7 million |
| Interest and related expense | $470.5 million | $246.9 million |
| Net interest income | $227.4 million | $223.7 million |
| Total net revenue | $306.6 million | $287.2 million |
| Net income attributable to common stock | $6.0 million; $0.02 per share | $112.1 million; $0.79 per share |
| Distributable Earnings (non-GAAP) | $39.9 million; $0.28 per diluted share | $194.4 million; $1.38 per diluted share |
| Distributable Earnings before realized gains, losses and principal charge-offs (non-GAAP) | $184.5 million; $1.31 per diluted share | $205.9 million; $1.47 per diluted share |
| Cash from operating activities | $111.1 million | $111.0 million |
| Cash and cash equivalents | $187.3 million | $306.5 million |
| Equity / book value per share | $2.30 billion / $16.28 | $2.46 billion / $17.48 |
| Total debt outstanding / net debt-to-equity | $5.69 billion / 2.4x | $5.66 billion / 2.2x |
| Total leverage ratio | 2.8x | 2.6x |
| Dividends declared per common share | $1.24 | $1.48 |
- At year-end, the held-for-investment loan portfolio comprised 65 loans, with $7.04 billion unpaid principal, $6.95 billion carrying value before general CECL reserve, a 9.1% weighted-average yield to initial maturity, 1.2-year weighted-average initial maturity and 69.2% weighted-average LTV. The stated LTV uses underwriting values that may not reflect current collateral values.
- Total CECL reserves were $152.7 million, comprising $72.6 million of specific reserves and $80.1 million of general reserves. The 2023 provision was $153.7 million, compared with $84.4 million in 2022.
- Loans on non-accrual had $715.1 million carrying value before specific reserves and $642.5 million net carrying value, or 9.2% of held-for-investment loans by carrying value. The portfolio’s weighted-average risk rating rose to 3.3 from 3.2 on a 1-to-5 scale.
- Net cash decreased by $133.3 million in 2023. Total disclosed liquidity sources were $237.6 million, including $48.1 million of approved and undrawn credit capacity based on existing collateral.
- Unfunded loan commitments were $1.08 billion; the company estimated $670.8 million of expected or in-place financing for remaining commitments, excluding approved undrawn capacity.
- 98% of loans by unpaid principal balance were floating-rate and indexed to SOFR. Net floating-rate exposure was $1.23 billion; management estimated a 100-basis-point SOFR move would change annual net interest income by approximately $8.1 million, or $0.06 per share, in either direction.
Material changes and notable items
- Net income attributable to common stock fell 95% year over year, chiefly reflecting the much larger credit-loss provision and lower loan-sale gains. Net interest income increased just 2%: higher interest income from rising reference rates and average loan balances was largely offset by sharply higher funding costs and more loans on non-accrual.
- Interest and related expense rose 91%. Total net revenue increased 7%, including higher real estate-owned revenue from improved hotel occupancy and operating performance and income from the mixed-use property acquired in June 2023.
- The company recorded $147.4 million of principal charge-offs during 2023, including $73.0 million on a San Francisco multifamily loan sold in September and $66.9 million associated with taking title to a New York mixed-use property. Three Florida senior loans classified as held-for-sale had a $7.5 million charge-off in the year-end presentation.
- Loan unpaid principal balance declined to $7.04 billion from $7.54 billion. Initial originations were $101.1 million, while repayments, sales and transfers exceeded additions. Management said it proactively de-levered specific assets during 2023.
- Quarterly dividends were reduced from $0.37 to $0.25 per share beginning in the third quarter; annual declared dividends fell to $1.24 from $1.48. For tax purposes, 69.1% of 2023 distributions were classified as nondividend distributions.
Outlook, risks and contingencies
- The filing provides no specific earnings, dividend or origination guidance. Management said it expects the Total Leverage Ratio to range from 2.0x to 3.0x. It intends to continue quarterly dividends, subject to board discretion, cash generation, financing restrictions and REIT distribution requirements.
- Management highlighted uncertainty around refinancing and repayment of transitional-property loans amid high interest rates, inflation, weaker CRE values and market volatility. Office demand and remote-work trends, construction delays and cost overruns, and borrower inability to refinance or execute business plans are material risks.
- Approximately $2.90 billion of held-for-investment loan principal had initial maturities in 2024, versus $915.9 million assuming all extension options are exercised. Five loans with $498.1 million aggregate principal were in maturity default; related financing outstanding was $250.7 million.
- Debt financing exposes the company to refinancing, margin-call, covenant and liquidity risks. No repurchase-agreement margin calls had been received through year-end. The company was in compliance with financing covenants at December 31, 2023; certain EBITDA-to-interest covenant thresholds were modified to 1.3x for the quarter ended December 31, 2023 and the quarter ending March 31, 2024, from a prior 1.4x threshold.
- Subsequent events: in January 2024, CMTG sold the three held-for-sale loans, generating $77.0 million of additional liquidity after repayment of associated financing and costs. On February 7, 2024, it extended the hotel-property mortgage maturity to November 9, 2024, made a $10.0 million principal paydown and accepted partial recourse; it also purchased a new interest-rate cap.
- A $4.2 million gain adjustment related to over-accrued accounts payable from the 2021 hotel foreclosure was recorded in 2023. The company said it was not material to the current or prior periods. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; CECL estimates and collateral valuations were critical audit matters.
- Other key risks include concentration in New York (22% of loans) and multifamily (41%), sizable exposures to hospitality and office, illiquid collateral, external-manager conflicts, and maintaining REIT and Investment Company Act exclusions. The company reported no material legal proceedings and no known cybersecurity incident that had materially affected it.
Important facts for investors to verify
- Track the status, collateral values, recoveries and eventual resolution of non-accrual, maturity-default and risk-rating-5 loans, including specific CECL reserve assumptions.
- Confirm the realized proceeds and final accounting for the three loans sold in January 2024, and monitor the remaining unfunded commitments and financing available to meet them.
- Review near-term loan and borrowing maturities, extension conditions, covenant headroom, available liquidity and any changes to recourse or advance rates.
- Assess whether net interest income and distributable earnings can support the current dividend after funding costs, credit losses and real estate-owned expenses; non-GAAP distributable earnings are not a measure of cash available for distribution.
- Monitor hotel and mixed-use property operating results, the extended hotel mortgage and partial recourse, and the impact of these owned assets on liquidity and credit risk.
- Reconcile the reported 2023 GAAP earnings, non-GAAP earnings measures, principal charge-offs and dividend tax characterization when evaluating recurring performance and shareholder returns.