Claros Mortgage Trust(CMTG) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited consolidated financial statements show a significant increase in net loss, driven by a substantial provision for credit losses, alongside decreased total assets and equity Consolidated Balance Sheets Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $5,823,122 | $6,966,955 | | Loans receivable held-for-investment, net | $4,881,446 | $5,947,262 | | Current expected credit loss reserve | ($326,072) | ($243,030) | | Real estate owned held-for-investment, net | $218,503 | $127,140 | | Total Liabilities | $4,066,092 | $4,958,869 | | Repurchase agreements | $2,440,057 | $3,190,339 | | Secured term loan, net | $708,378 | $709,777 | | Total Equity | $1,757,030 | $2,008,086 | - Total assets decreased by approximately $1.14 billion from December 31, 2024, to June 30, 2025, primarily due to a reduction in net loans receivable[9] - Total equity declined by approximately $251 million over the same period, largely as a result of the accumulated deficit increasing from net losses[9] Consolidated Statements of Operations Consolidated Statement of Operations Summary (in thousands, except per share data) | Account | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $26,143 | $41,906 | $54,954 | $86,820 | | Total net revenue | $51,632 | $64,487 | $95,007 | $123,312 | | Provision for current expected credit loss reserve | ($189,489) | ($33,928) | ($230,612) | ($103,888) | | Net loss | ($181,707) | ($11,554) | ($260,330) | ($64,349) | | Net loss per share (Basic and diluted) | ($1.30) | ($0.09) | ($1.86) | ($0.48) | - The net loss for the six months ended June 30, 2025, increased significantly to $260.3 million from $64.3 million in the prior-year period[12] - This was primarily driven by a more than doubling of the provision for current expected credit loss reserve to $230.6 million and a decrease in net interest income[12] Consolidated Statements of Changes in Equity - Total equity decreased from $2,008.1 million at December 31, 2024, to $1,757.0 million at June 30, 2025[15] - The primary driver of this decrease was a net loss of $260.3 million for the six-month period, partially offset by stock-based compensation[15] - The company did not declare any dividends during the six months ended June 30, 2025, in contrast to the same period in 2024 when dividends of $71.2 million were declared[15] Consolidated Statements of Cash Flows Consolidated Statement of Cash Flows Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($41,633) | $27,013 | | Net cash provided by investing activities | $1,023,971 | $367,046 | | Net cash used in financing activities | ($887,918) | ($439,551) | | Net increase (decrease) in cash | $94,420 | ($45,492) | - Cash from investing activities was primarily driven by $767.7 million in loan repayments and $302.5 million from loan sales[18] - Cash used in financing activities was mainly due to $1.5 billion in repayments of secured financings, which exceeded the $675.9 million in proceeds from new secured financings[21] Notes to Consolidated Financial Statements - The company is a Maryland corporation externally managed by Claros REIT Management LP, and it has elected to be taxed as a Real Estate Investment Trust (REIT)[24][25][26] - The preparation of financial statements requires significant management estimates, particularly concerning the current expected credit loss (CECL) reserve, fair value of real estate assets, and impairment assessments[30] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a significant net loss driven by credit loss provisions, a reduction in the loan portfolio, an increase in high-risk loans, and several property acquisitions via foreclosure Key Financial Indicators | Metric | Q2 2025 | As of June 30, 2025 | | :--- | :--- | :--- | | Net Loss per Share | ($1.30) | N/A | | Distributable Loss per Share | ($0.77) | N/A | | Dividends Declared per Share | $0.00 | N/A | | Book Value per Share | N/A | $12.27 | | Adjusted Book Value per Share | N/A | $13.27 | | Net Debt-to-Equity Ratio | N/A | 2.2x | - The company's primary business is originating senior and subordinate loans on transitional commercial real estate (CRE) assets in major U.S. markets[193][194] Our Portfolio Loan Portfolio Summary as of June 30, 2025 | Metric | Value | | :--- | :--- | | Number of Loans | 42 | | Unpaid Principal Balance | $5.21 billion | | Carrying Value | $5.01 billion | | Weighted Average Yield to Maturity | 7.0% | | Weighted Average Risk Rating | 3.8 | - During the first six months of 2025, the company sold three loans with a total unpaid principal balance of $405.0 million, resulting in a cumulative principal charge-off/valuation allowance of $101.2 million[213] - The company acquired legal title to two multifamily properties through mortgage foreclosures, which were previously senior loans with combined unpaid principal of $146.7 million[225][226] - The total CECL reserve was $378.5 million as of June 30, 2025, with a provision of $230.6 million for the first six months driven by changes in loss rates, risk ratings, and collateral values[232] Results of Operations - Comparing Q2 2025 to Q1 2025, the net loss increased from $78.6 million to $181.7 million, primarily due to a significantly higher provision for credit losses[261][268][270] - For the six months ended June 30, 2025, compared to the same period in 2024, total net revenue decreased by $28.3 million due to a smaller loan portfolio and more non-accrual loans[271][272] - The net loss widened from $64.3 million to $260.3 million, largely due to the increased credit loss provision[280] Liquidity and Capital Resources Leverage Ratios | Ratio | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Net Debt-to-Equity Ratio | 2.2x | 2.4x | | Total Leverage Ratio | 2.6x | 2.8x | - Total sources of liquidity increased to $223.8 million at June 30, 2025, from $101.7 million at year-end 2024, primarily due to an increase in cash and cash equivalents[292] - As of June 30, 2025, the company had $394.8 million in unfunded loan commitments and expects to fund its net commitment of $122.5 million over a weighted average period of 1.7 years[302][306] - The company established a $150.0 million at-the-market (ATM) stock offering program in May 2024, but had not issued any shares under it as of June 30, 2025[298][299] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include interest rate, credit, capital markets, financing, and counterparty risk, with a notable sensitivity of net interest income to SOFR changes Interest Rate Sensitivity Analysis (Annual Impact) | Change in SOFR | Impact on Net Interest Income (in thousands) | | :--- | :--- | | -100 bps | $3,268 | | -50 bps | $1,526 | | +50 bps | ($1,526) | | +100 bps | ($3,052) | - Credit risk is managed through extensive due diligence, conservative loan-to-value ratios, and proactive asset management, leveraging its Sponsor platform for workout scenarios[336][339] - Financing risk is mitigated by diversifying financing sources to counter potential unwillingness from lenders or increased costs, though no margin calls have been received to date[341][342] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of June 30, 2025, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[355] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[354] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company and its Manager are not currently subject to any legal proceedings expected to have a material financial impact - The company and its Manager are not currently party to any legal proceedings that are expected to have a material financial impact[358] Item 1A. Risk Factors There have been no material changes to the principal risk factors from those disclosed in the 2024 Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024[359] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[360] Item 3. Defaults Upon Senior Securities The company reported no defaults upon its senior securities - None[361] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[362] Item 5. Other Information The company reported no other material information and no adoption or termination of Rule 10b5-1 trading arrangements by directors or officers - During the three months ended June 30, 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement[363] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including financing agreement amendments and officer certifications - The report includes several exhibits, such as amendments to repurchase agreements with Wells Fargo and JPMorgan Chase Bank, and required certifications from the Principal Executive Officer and Principal Financial Officer[364]