Hello everyone, and welcome to Claros Mortgage Trust 4th quarter 2023 earnings conference call. My name is Bruno, and I'll be your conference facilitator today. All participants will be in a listen-only mode. After the speaker's remarks, there'll be a question-and-answer session. If you'd like to register for a question, please press * 1 on your telephone keypad. I would now like to hand over the call to Anh Huynh, Vice President of Investor Relations for Claros Mortgage Trust. Please proceed. Thank you. I'm joined by Richard Mack, Chief Executive Officer and Chairman of Claros Mortgage Trust, and Mike McGillis, President and Chief Financial Officer and Director of Claros Mortgage Trust. We also have Kevin Cullinan, Executive Vice President who leads MRECS Origination, and Priyanka Garg, Executive Vice President who leads MRECS Portfolio and Asset Management. Prior to this call, we distributed CMTG's earnings release and supplement. We encourage you to reference these documents in conjunction with the information presented on today's call. If you have any questions following today's call, please contact me. I'd like to 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 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 through their nearest GAAP equivalent, please refer to the earnings supplement. I would now like to turn the call over to Richard. Good morning, and thank you for joining us for CMTG's 4th quarter earnings call. What a difference a year makes, or at least that's how it seemed as markets commenced 2024 with optimism. Even CMBS spreads rallied as investors enthusiastically purchased bonds in anticipation of imminent rate cuts and a CRE market bottom. But early optimism in the real estate market for rapid monetary easing had been tempered by the reality that the U.S. economy continues to demonstrate resilience, strong employment, and moderate but persistent inflation. GDP is strong. Labor numbers beat expectations. And while inflation has declined significantly, marking meaningful progress towards the Fed's inflation target, it's still above the target. And if January and February are any guide, handicapping Fed movements will be very hard in 2024. Will there be a lag effect of monetary policy dampening growth? Will layoffs commence in earnest? Will ongoing geopolitical risks disrupt supply chains and reignite inflation? And what are the inherent complexities surrounding the election year? Heading through the noise, most signals point to a soft landing unless you're in the property business and counting on rapid rate cuts. Consequently, good news can be bad news for commercial real estate. With the exception of January, real estate capital markets have been constrained for the last 18 months. Higher borrowing costs coupled with muted transaction volumes have driven up cap rates, and many operators are contending with negative leverage until and unless the Fed drops rates. As a result, not much happened in real estate in 2023 despite the extreme market volatility and negative sentiment and headlines. Most real estate investors assumed a wait-and-see stance, with many postponing difficult decisions that will eventually need to be addressed. Looking ahead, we believe that 2024 and more certainly 2025 will unfold much differently. In 2024, the expectation of rate cuts, along with the availability or lack thereof of distressed asset trades, will likely become a critical inflection point for investors feeling the weight of capital available to deploy. This will bode well for the beginning of the inevitable rationalizing of the real estate market and some consensus as to values. However, our best guess now is that this happens slowly in 2024, with rate cuts remaining on the horizon but slow to materialize. As a result, it will likely take until 2025 for the industry to fully embrace refinancings and recapitalizations. Until rate cuts happen or there is conclusive evidence that they will not, the system is likely to be constrained. Right now, it seems unlikely to be clear until the end of 2024 or 2025. Regardless of the exact timing, we need more consensus on CRE values and fundamentals and more visibility from the Fed on rate cuts for transaction volumes to escalate to a level where the capital markets will become constructive. That said, we do anticipate seeing more price discovery and a reduction of bid-ask spreads in 2024. We expect this will slowly lead to heightened transaction volumes and to more seller capitulation, which will in turn place pressure on certain banks and investors to come to terms with declining valuations and weakening fundamentals of certain asset classes. Therefore, we are anticipating a more active 2024 but also a more challenging year for the commercial real estate industry collectively. On a positive note, we can look to the substantial amount of capital sitting on the sidelines waiting to be deployed to act as a shock absorber. If you have capital to deploy, there are investment opportunities across various property types that are supported by strong long-term fundamentals. However, after a slow 2023, investor patience may be waning, and there is not likely to be a clear sign for an opportune entry point. As for CMTG, our borrowers have not been immune to the higher-rate environment and resulting diminution in asset values. Generally speaking, our portfolio performance can primarily be attributed to the trends we are seeing in the broader market, namely higher interest rates and reduced capital markets activity. As we navigate through these times, it gives me much comfort to know that our executive team has extensive experience managing portfolios through real estate cycles, and we know that this too shall pass. We believe that our equity mindset approach will now prove to be even more critical. Real estate lending is no longer simply a spread game. This environment dictates that we are all equity investors now, which requires deep, boots-on-the-ground real estate expertise. This will be essential to applying a focused, solutions-driven approach to the inevitable problems. To a large extent, we were made for this. As disconcerting as such a reordering may be, we are ready. I thank you all for this opportunity to demonstrate what we can do over the coming quarters. I will now turn the call over to Mike. Thank you, Richard. For the fourth quarter of 2023, CMTG reported distributable earnings per share prior to realized gains and principal charge-offs of $0.31 per share, which exceeded our quarterly dividend of $0.25 per share, resulting in 1.2x dividend coverage. Distributable earnings per share prior to realized gains and principal charge-offs for the prior quarter is $0.35 per share. The quarter-over-quarter change is primarily a result of a California multifamily loan placed on non-accrual during the fourth quarter, which I will discuss in more detail shortly. In addition to earnings reflecting the full quarterly impact of two loans that were placed on non-accrual during the prior quarter, offset in part by improved operating performance of the New York City REO hotel portfolio. The quarterly improvement of the REO hotel portfolio reflected the seasonality you usually see with New York City hotels, generally reporting a weak first quarter followed by improvements in the second and third quarters and then rounding out the year with a strong fourth quarter. Distributable earnings per share came in at $0.26 per share for the 4th quarter of 2023, and GAAP net income was $0.24 per share. CMTG's primarily floating-rate portfolio was $6.9 billion at December 31 compared to $7.1 billion at September 30. The quarter-over-quarter decrease was primarily due to the reclassification of three loans secured by a variety of asset classes to held for sale, representing $267 million of carrying value as of September 30, and loan repayments of $38 million, which was offset in part by the impact of follow-on fundings in our existing portfolio of $168 million. Subsequent to year-end, the three loans held for sale were sold to a single buyer for $262 million. Effectively, two loans were sold at par, and one loan secured by a mixed-use development project was sold at 93% of its total loan commitment due to its significant future funding component and being early in its construction cycle. In total, the three loans were sold at 96% of UPB. In this case, the opportunity to sell two large loans at par and a smaller third loan at a reasonable discount while eliminating a meaningful future funding commitment aligns with our goal of maximizing liquidity and deleveraging our balance sheet. This transaction generated $77 million of net liquidity, and the fact that the loans were sold at a modest discount to par despite a large future funding component and excess of $100 million on the mixed-use construction loan speaks well to the credit quality of our portfolio. At December 31, multifamily remains our largest exposure at 41% of the portfolio's carrying value. We've been actively monitoring the multifamily sector, keeping a watchful eye on underlying fundamentals. Near term, we believe there will generally be pressure on the sector as the impact of higher benchmark rates adversely affects certain floating-rate borrowers who acquired assets at tight cap rates. We have been observing certain property-level NOIs being negatively impacted by decelerating rent growth or rent contraction, in addition to rising labor and insurance costs. Additionally, the higher-rate environment has placed many owners in the challenging position of having negative leverage. Near-term cash flow issues, combined with the cost of replacing interest rate caps, replenishing interest and operating reserves, as well as valuation pressures upon loan maturity, can potentially exacerbate the pressure on multifamily operators. With this in mind, we anticipate there will be circumstances where we will be working with our borrowers on extension requirements if they are demonstrating a continued financial and operational commitment to their assets. That said, we continue to have a favorable view of the long-term outlook for the multifamily sector. Limited housing supply and relatively higher mortgage rates associated with home purchases will continue to drive demand in the multifamily sector. Looking ahead, we believe high-growth markets will outperform on a relative basis. Our continued conviction in the strength of the asset class will inform our approach to working with borrowers. If we don't see a continued financial and operational commitment to assets, we have the experience and conviction to pursue our remedies. Now, turning to portfolio credit. The weighted average risk rating on the portfolio increased to 3.3 from 3.2 for the prior quarter. During the quarter, we migrated 5 loans to a 4-risk rating, and no additional loans migrated to a 5-risk rating. We downgraded 3 of the 5 loans due to recent or near-term maturities. With certain borrowers grappling with the higher-interest rate environment and declining valuations that Richard mentioned, we are keenly focused on borrowers' ability to meet as-of-right extension conditions or pay off loans as required and therefore have added these to our watchlist. It's important to note that all 3 loans are current on debt service. A fourth downgraded loan was a multifamily loan that is also current on debt service but is experiencing downward NOI pressure consistent with what I previously mentioned. Finally, the fifth downgraded loan is a New York City land loan that has been in payment default but carries a significant repayment guarantee. In addition, one loan was placed on non-accrual during the quarter, a previously 4-rated loan with a UPB of $215 million collateralized by two under-construction multifamily properties in Southern California. As of year-end, all accrued interest through the third quarter has been collected. The two assets that collateralized the loan are very well located, and we believe upon completion will be worth well in excess of our loan amount. Because of that, in our conviction in longer-term tailwinds in the multifamily sector generally, we have initiated foreclosure proceedings. As we work through this process, there are several potential paths to resolution, all of which we are currently pursuing. With regard to CECL, total CECL reserves as a percentage of UPB was 2.2%, which is in line with the prior quarter. Specific CECL reserves represented 21.5% of the UPB of our loans with specific CECL reserves. We have no new specific CECL reserves as of year-end. The general CECL reserve of 1.2% was comprised of 3% of the UPB on 4-rated loans and 60 basis points on the UPB of the remaining loans. Proactively managing our liabilities is as equally important as managing our loan portfolio. Maintaining frequent collaborative and constructive conversations with our counterparties remains a top priority. As a result, we have reduced leverage on a number of assets that are in more challenged property types over the course of 2023 and expect it will continue throughout 2024. In doing so, we continue to look for opportunities to deleverage the portfolio and reduce our cost of funding. During these times, we also believe it's prudent to adopt a higher-for-longer mindset as it relates to interest rates and employ a conservative approach to liquidity management. At December 31, we reported $238 million in total liquidity, which includes cash and approved and undrawn credit capacity. Unencumbered loans totaled $433 million, of which 93% were senior loans. In addition, the $147 million New York mixed-use REO property was also held unlevered. Our portfolio's future funding commitment has steadily decreased over the course of 2023. At December 31, our future funding commitment was $1.1 billion compared to $1.9 billion at year-end 2022. Looking to the year ahead, we plan to prioritize liquidity, meaning we'll favor liquidity preservation over deploying capital via originations until there's a shift in market dynamics. I would now like to open the call for questions. Operator? Ladies and gentlemen, if you'd like to ask a question, please press * 1 on your telephone keypad. That's * 1 on your telephone keypad. To withdraw your question, * followed by 2. Please also remember to unmute your microphone when it's your turn to speak. We do have our first question. It comes from Rick Shane from JP Morgan. Rick, your line's now open. Hey, guys. Thanks for taking my question this morning. Look, I'd love to talk about dividend policy at this point. Given the distributable income in 2023, as you move into 2024, you are in a position where you don't have to pay a dividend as high as the current run rate. I realize that there is potentially an adverse signal to the market in terms of reducing the dividend, but the reality is there are also advantages to retaining capital, particularly in environments like this where you're starting to see some opportunity. Is there a case to be made for a, and I'm not sure what the right words are, a bullish dividend cut where you're retaining capital so that you can recycle it into high returns? Rick, thanks for the question. It's a very good question. If you recall, we cut our dividend back in the third quarter of 2023 to try to bring it to a more sustainable level based on where we felt our moderate-term outlook was going to be on distributable earnings. The dividend is something we look at with our board every quarter. As part of that, we're looking at pivots in the portfolio, market opportunities, what we need liquidity for, among other factors. That'll be something that us and our board will continue to evaluate. You properly highlight right now, the cost of capital is very high. Retaining capital may be a good use of funds, but it's sort of too early to foresee anything at this point in time. Got it. And understood. Look, it's a weird balancing act. I totally get it and very much appreciate the answer. Thank you. Thanks, Rick. Our next question comes from Douglas Harter from UBS. Douglas, your line's now open. Great. Thank you. As you mentioned, looking to continue to prioritize liquidity, are you thinking about that as not making new loans, or are you looking to continue to sell loans and reduce future funding commitments as we go through 2024? Thanks. Thanks, Doug. I think we will likely not be making future funding commitments on new loans until we see more repayment activity in the existing portfolio. I think we continue to see opportunities to execute opportunistic loan sales in the current market environment. That's something that we're, as we sort of look at liquidity needs of the business, it's something that we're constantly looking at across the portfolio every day relative to future funding requirements on our existing construction loans, expected repayment activity, opportunities to sell loans in the marketplace. I think the focus really is on how do we continue to generate liquidity out of the existing portfolio through repayments, loan sales, or leveraging unlevered assets before we start to look at new origination opportunities. And then I guess just to follow up, how are you thinking about which assets to target sale for? Is that assets where you think where you think you can get closest to par and therefore kind of selling some of the better quality loans? Or how are you thinking about which assets to consider selling? Yeah. I mean, it's a very granular decision. It's very much loan by loan. And a couple of quarters ago, we made a tough decision to sell a loan at a deep discount to the UPB. And it was a hard decision. But as we sort of looked at the opportunity on that loan and the underlying collateral, we felt it was best to take our lumps and move on. And there's other cases where, like in this case, this quarter, we saw the opportunity to sell two loans that were very close to maturity and pay off. And by combining it with another loan that had a significant future funding obligation, we were able to generate near-term liquidity, deleverage the balance sheet, and reduce a future funding commitment. So that checked a lot of boxes as well for us. But it's something that we look at regularly, and it's going to be a case-by-case analysis. Okay. Thank you. Our next question comes from Sarah Barcomb from BTIG. Sarah, your line's now open. Hey, everyone. Thanks for taking the question. I know you've touched on liquidity a lot here, but just hoping we can dive in on the subject of liquidity, just given there's over $1 billion of unfunded commitments. Could you walk me through your sources of liquidity for funding these commitments, particularly the $673 million of additional liquidity sources? You highlight that in your supplemental. I just wanted to make sure I had those sources clear. Sure. I think the supplemental liquidity and I'm not sure which item you're referring to, but I can walk you through our sources of liquidity. We have a number of near-term loan repayments and resolutions that we expect to occur over the near to medium term, as well as unencumbered assets consisting of about just under $600 million of loans, primarily senior loans that we own unlevered and an REO portfolio that is also owned unlevered as well. So the financings and then with respect to the financings in place, those are financing commitments that we've already achieved are obtained on our construction loans with future funding obligations. And those future fundings and ability to draw on that future funding remains in place, and it's spread across a variety of asset-specific financings as well as warehouse facilities, but primarily asset-specific financings. Okay. Great. Then just switching gears here for my follow-up, could you give us an idea for the magnitude of active loan modifications that you're negotiating in the near term here? And have repo lenders been supportive of these modifications? And if so, can you give some color on the terms? Yeah. Hi, Sarah. Thanks for the question. Oh. Sarah, it's Priyanka. I'll jump in here. So, as you see, our watchlist. We did migrate a handful of loans to fours. And those were really driven by exactly what you just pointed out, which is near-term maturities that are occurring or have occurred and also modification discussions that we're having with different borrowers. So if you look at the watchlist, that gives you a good sense of active dialogue with borrowers. In terms of the flavor of those modifications, it's very granular, deal by deal, dependent on market, sponsorship, all the things you would expect. But we've really held firm to two different guiding principles. One is that we need a committed sponsor. And that means both with capital and with operational expertise. So if a borrower is bringing some capital to the table that's meaningful to them and also demonstrating that they're adding value, we're going to work with that borrower. We're in the business of lending, not owning, and that's what we want to do. But the second guiding principle is we're not interested in kicking the can down the road. So we're not agreeing to PIK interest or accruing partial interest. We want to make sure we're not exacerbating issues on basis on the back end. As we sit here today in our portfolio, we only have 2 small loans that have any kind of PIK feature, and that's only about 1% of our UPB. So we're being very, very disciplined as we approach these modifications. And then the last part of your question was as it relates to our financing counterparties. And they've generally been very supportive. We believe in the early and often when it comes to conversations with them, we're making sure we're effectively having a tri-party negotiation and want no surprises. So depending on the situation and what their own hot buttons are, we'll have discussions around that. But we really want to make sure that we're identifying the issues upfront. Thank you. Yep. No problem. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. That's star 1 on your telephone keypad. Our next question comes from Jade Rahmani from KBW. Jade, your line's now open. Hi. This is Jason Sabshon for Jade. Thank you for taking my questions. It'd be helpful if you could walk us through the change in overall liquidity and where it stands today. I see it was around $430 million in third quarter, $238 million at year-end, and then the February update, it was around $215 million. So any color on that would be helpful. Thank you. Sure. I would say that we continue to work on resolutions of existing loans in the portfolio and continue to work through potential repayments of some of those loans. In addition, we also continue to use available liquidity to deleverage. I think that's primarily what you've seen between the end of 2023 and a week or so ago, a combination of the dividend payment as well as paying down leverage on our existing facilities. Obviously, we generated net liquidity from the loan sales, which we have used that liquidity to pay down borrowings in an accretive manner. I think we're going to continue to see a lot more of this going forward where we continue to try to work through repayments on existing loans and execute opportunistic loan sales across the portfolio and use that liquidity to deleverage the balance sheet. Great. Thank you. And just to switch gears, could you comment on the CECL reserve? It was flat quarter-over-quarter despite the increase in risk 4 loans. Also, the earnings presentation shows that general reserves declined on both risk 4 and on the 1-3 rated loans. So it would be helpful if you could comment on that. Sure. The CECL reserve staying relatively flat despite the increase in four rated loans is a function of how we have built out our CECL model. So those loans that migrated into the four category, even though there were three rated loans, we had already applied a projected loss factor multiplier to those given the underlying property type and of those assets. So that had already been captured in prior reserves. And then with respect to the general CECL reserve, that's very much a function of a lot of the macroeconomic data that goes into the model. And really, from third quarter to fourth quarter, there were sort of favorable movements in some of the historical loss history. I know it sounds a little counterintuitive, but that's what the data said. But that was a relatively small impact during the quarter. Great. Thank you very much. We currently have no further questions. So I would like to hand the call back to Richard Mack for closing remarks. Over to you. Thank you. Thanks to all of you for joining us and for your insightful questions as always. Let me summarize some of the questions in the call by saying that this is, of course, a balancing act on liquidity, offense, having capital deployed, and delevering in a difficult environment. We do see opportunities to lend, in this market, but we want to see the real estate capital market show stability first. The benefit of being low-levered is that we are likely able to increase leverage and pivot to offense once we have confidence in market stability. In the interim, and as always, it is about asset managing. We are in the weeds in every asset, making sure that the borrowers do the right thing. If they do not, we are ready to do so. We're ready to step in and force them to do so. We believe that this principle is highly valued by our lending counterparties, and we are in constant, transparent communication with them. I think that has made a tremendous difference from our business from day one. So while this is a tough time, we know how to work through it. I think we are starting to look forward to a different capital market. But until we see that, we're going to keep assuming that things are going to be higher for longer and difficult for longer and look with optimism towards a change in the market. We thank you all for your support and for joining us today. We'll look forward to talking to you all again soon. Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you.