Welcome to Claros Mortgage Trust second quarter 2026 earnings conference call. My name is Elodie, and I will be your conference facilitator today. All participants will be in a listen-only mode. 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 over 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, Chief Financial Officer, and Director of Claros Mortgage Trust. We also have Priyanka Garg, who serves as Executive Vice President of CMTG and President of Mack Real Estate Group. 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, 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 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 reconciliation of non-GAAP measures to their nearest GAAP equivalent, please refer to the earnings supplement. I would now like to turn the call over to Richard. Thank you, Anh, and thank you all for joining us this morning for CMTG's second quarter 2026 earnings call. The broader macroeconomic environment continues to present investors with both opportunities and challenges. Inflation has remained above targeted levels, interest rates remain elevated, and geopolitical developments continue to contribute to periods of volatility across financial markets. At the same time, commercial real estate fundamentals have generally improved, supported by limited new construction, healthy levels of capital seeking deployment, and improving transaction activity. With this as a backdrop, CMTG's second quarter results represent continued progress, albeit painful progress, towards returning to originating loans on transitional real estate. As we have highlighted previously, our strategic priorities for 2026 have been turning over the portfolio, resolving watchlist loans, repositioning our REO assets, and de-leveraging the balance sheet. Our second quarter results and activity to date in July reflect this commitment to working towards these goals. Highlights include another $482 million of loan and REO resolutions, including three watchlist loans. These resolutions reduced leverage, generated additional liquidity, and reduced watchlist loan exposure while moving us closer to the point where we can make capital allocation decisions. Last quarter, we mentioned eight lender-driven sale processes that were being held across our portfolio. These processes have yielded pricing discovery on liquidation values versus our view of the inherent value of the underlying assets over a longer-term horizon. While demand in these sales processes has generally been strong, in certain cases, pricing levels have fallen short of our expectations, especially in the multifamily sector, which we would have expected to be more resilient given demand we see from investors in that asset class. Therefore, consistent with our stated goals, we took additional specific CECL reserves during the quarter on certain office and Sun Belt multifamily loans to reflect anticipated near-term resolutions. We also reduced the carrying value of two REO assets that we moved to held-for-sale. These adjustments resulted in a Q2 2026 book value of $8.58 per share. This reduction in book value is primarily attributable to nine loan and REO positions in the portfolio. The balance of the portfolio can be divided into three categories. First are 15 loans on accrual subject to general CECL reserves. Two of these repaid in July, and we currently anticipate the remaining 13 loans to repay in full, similar to the $464 million of UPB that have had full repayments in this calendar year. Second, there are only four loans subject to specific CECL reserves that have not yet been subject to price discovery and are likely to be longer-term resolutions. Finally, there are seven additional REO assets with appropriate carrying values and perhaps some upside. These provisions reflect our commitment to turning over the portfolio, resolving watchlist loans and REO assets, de-leveraging the balance sheet, and building liquidity in order to reallocate capital to more accretive uses in the near future. As we continue to make progress in our strategic priorities, we hope to cause the disconnect between our book value and our stock price to become less pronounced. That said, we acknowledge that our goals of returning to a largely performing loan portfolio, executing on other accretive transactions such as share buybacks and ultimately resuming a dividend will take time. Our continued focus on executing our strategic priorities should position us well to meet those objectives. As you've heard me say before, we have had to make difficult decisions over the last two years. Although we still have work to do, based on the progress to date, we believe we have largely turned the corner and now expect to be in a position to make capital allocation decisions in the coming quarters, which may include new loan originations, additional de-leveraging, investment in select REO assets, and share repurchases. We are committed to these strategic priorities because they are necessary for us to capitalize on what we believe will be an increasingly attractive investment environment for CMTG over time. I'll now turn the call over to Mike. Thank you, Richard. For the second quarter of 2026, CMTG reported a GAAP net loss of $1.81 per share and distributable loss of $0.63 per share. Distributable loss prior to realized gains and losses was $0.07 per share. During the quarter and through July, we remained focused on executing the strategic priorities Richard discussed, completing another $482 million of total loan and REO resolutions, including $223 million of regular way repayments. Proceeds from these resolutions were used to reduce leverage by $346 million, while overall liquidity increased from $116 million on May 5th to $168 million at July 24th. During the second quarter, we resolved one watch list loan through foreclosure. This was a $25 million, 5-rated loan collateralized by a multifamily property in the Dallas MSA. We also completed the sale of one of our Dallas multifamily REO assets, originally foreclosed upon in July 2025 for gross proceeds of approximately $47 million, which was slightly above our carrying value. Subsequent to quarter end, we've had an active July. We resolved a watch list loan through a loan sale yielding gross proceeds of $70.7 million. As of June 30th, the loan was classified as held-for-sale. This was a San Francisco office loan originated in February 2020, which has faced significant challenges. The loan had been on our watch list since early 2022. As part of our strategy to turn over the book, we determined that this was the right time to sell given the recovery in the San Francisco market. Subsequent to quarter end, we resolved a watch list loan through a discounted payoff for gross proceeds of $70 million versus a $75 million UPB or 94% of par. The loan was secured by a multifamily property in the Salt Lake City MSA. The loan was downgraded to a 5 during the quarter once the discounted payoff was agreed upon. Finally, subsequent to quarter end, we were repaid in full on two loans totaling $223 million of UPB. Both loans were collateralized by multifamily assets, one in Seattle and one in Chicago. In summary, since the beginning of the second quarter, we've resolved five loans totaling $435 million of UPB prior to principal charge-offs, of which three were watch list loans totaling $212 million of UPB. Year to date, we've resolved 10 loans totaling $1 billion of UPB prior to principal charge-offs, of which seven were watch list loans totaling $647 million of UPB. Our watch list loans have been steadily coming down from $2.7 billion at year-end 2024 to $1.7 billion at year-end 2025 to $1.1 billion today. Following July resolutions, our portfolio is now comprised of 23 loans or $3.1 billion of UPB and nine REO assets with a total carrying value of $724 million. Turning to portfolio credit. As Richard alluded to, our loan and REO asset sale marketing processes, along with our goal of turning over the portfolio, has led to downgrades on four loans, increased specific reserves on three loans, and reclassification of two REO assets to held-for-sale. Three loans with a combined UPB of $372 million were downgraded from risk rating four to five, primarily due to price discovery in our lender-driven sales processes. In order to resolve the loans today, CMTG needs to meet purchaser return thresholds which remain elevated in the current interest rate environment. As a result of the downgrades, we took specific CECL provisions on these loans of $109 million or $0.75 per share, which reflects our commitment towards executing our stated goals and reflects our willingness to transact at today's levels. The fourth loan being downgraded is a $75 million Utah multifamily loan previously mentioned. This loan was downgraded from a risk rating of three to a risk rating of five during the quarter after negotiating the 94% discounted payoff that occurred subsequent to quarter end. As Richard mentioned, in addition to these four downgrades, we increased specific CECL reserves on three other previously five-rated loans to reflect real-time market feedback from our lender-driven sales processes. As a result of feedback from our sales processes, we took additional specific CECL provisions of $74 million, or $0.51 per share during Q2, which again reflects our commitment towards executing our stated goals and willingness to transact at today's levels. Our overall specific CECL reserve at quarter end was $517 million, averaging 32% of related UPB. While there may be greater collateral value in certain of these watch list loans on a longer-term basis, we believe these risk ratings and reserve levels are appropriate given our stated objective of turning over the book in the near term and generally aligning our book value with such objectives. Our general CECL reserve and gross dollar terms remained relatively static QoQ at approximately $50 million. However, as a percentage of UPB relating to loans subject to the general reserve, the reserve increased from 2.3%-2.9% of UPB. Turning to REO. At quarter end, we reclassified our mixed-use REO asset and one of our multifamily REO assets to held-for-sale at carrying values that we expect to transact at in the coming months. As a result, we recognized a loss upon reclassification to held-for-sale of $30 million or $0.21 per share for the quarter. As expected, our New York City hotel portfolio yielded improved performance quarter-on-quarter due to expected seasonality. The portfolio contributed $0.3 per share of distributable earnings, representing an improvement of $0.5 per share compared to the first quarter and an improvement of $0.2 per share compared to Q2 2025. Our multifamily REO portfolio operating performance remained in line with Q1 results. We continue to focus on enhancing property performance, completing targeted capital improvements where appropriate, and actively evaluating monetization opportunities across the multifamily portfolio. We remain encouraged by the level of buyer interest for several of our REO assets, and while market clearing prices at times have been lower than anticipated, we continue to believe that in most cases, taking these assets REO has created incremental value beyond what could have been achieved in a loan sale. Turning to the balance sheet. During the quarter, we reduced outstanding financings net by approximately $66 million, including $20 million of deleveraging payments. Despite this, our net debt-to-equity ratio increased to 2.0x compared to 1.7x at March 31st, primarily driven by declines in book value as a result of additional CECL provisions and losses on REO held for sale taken during the quarter. Following resolutions to date in July and additional financing repayments of $299 million, our net debt-to-equity ratio has decreased to 1.7x on a pro forma basis. Liquidity at quarter end totaled $103 million, including cash of $90 million. As of July 24th, our liquidity increased to $168 million. In addition, our unencumbered asset pool totaling $509 million of loan UPB and REO carrying value continues to provide financial flexibility, and we're in the process of executing sales of certain of those assets, which we believe will generate approximately $140 million of additional liquidity. Overall, we've made solid progress in achieving our stated objectives, turning over the portfolio, resolving watchlist loans, repositioning our REO assets, and deleveraging the balance sheet. Our strategy has been deliberate and consistent. As we continue executing against those priorities, we expect CMTG to be well-positioned for the company's next phase. 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 a question, please press star one on your telephone keypad. To withdraw your question, press star one 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&A roster. Your first question comes from the line of Rick Shane with J.P. Morgan. Please go ahead. Hey, guys. Thanks for taking my questions this morning. I appreciate you guys laying out so much detail here. Look, you are in the market with property sales. You're in the market with loan sales. I am curious what types of investors, what types of buyers do you see out there? Also, it's interesting, we had a call in an adjacent sector yesterday where a very large company talked about lower volumes in the second quarter as a function of rate volatility, and it sort of froze their markets a little bit. I am curious, since you guys are in the market as net sellers right now, how behavior and how feedback has changed, and is there any chilling effect as a function of the rate volatility we've seen? Hi, Rick, it's Priyanka. I'll start off and then maybe Richard will want to add some thoughts. Really pertinent question, something we've been talking about a lot. To answer the first question, what kinds of investors? Given that some of these assets require a lot of operational focus, we're seeing a lot of local guys who are going to work out assets, both multi-family and office. Local GP players who are then looking to partner with LP capital. That LP is coming from a variety of sources, but a lot of private family offices and private investors. We're seeing less so in the more private equity hedge fund space, that's a good segue into the second part of your question. Yes, we are definitely seeing volatility. A lot of that volatility is informing the additional CECL reserves we took this quarter, as well as some of those downgrades. Investors simply have higher return thresholds, that's being driven by rate volatility, also the availability of LP capital because I think that that LP capital that has a wider array of investment options, they're allocating differently, they are waiting for what they perceive to be better opportunities coming down the pike. I'll summarize my comments by saying we are very committed to turning over the book. We're meeting the market. That's reflected in our book value that we just reported, we think we can achieve those levels. Richard, do you want to add anything? Sorry, Richard. Rick, let me just add one thing, Rick, thank you for the question. What's very interesting is that we see a very deep market of buyers. Sometimes we'll see 20 people show up for a bid list. As Priyanka suggests, the volatility is extreme. Sometimes we see a price that's much better than we thought, sometimes it's much worse. It reflects, I think, a lot of people out there, a high cost of capital, different underwriting perspective, the volatility of rates. When we put something on the market, we're trying to be conservative about it, also opportunistic. When we get bids that we feel are valuable, we want to take them. When we don't, and we feel like we really get a bid that is on the other end of the volatility spectrum, especially given what's going on with rates every day, it's oftentimes we want to maybe take a CECL reserve, hold it, try to add a little value, and then go back out. It's just a market with a tremendous amount of volatility in pricing. I think that reflects a little bit of a negative leverage environment in some asset classes, and just a tremendous amount of debt capital available, but not as much equity. Hopefully that's a fulsome response. Got it. Actually, Richard, that dovetails into my follow-up question, which is that look, as you guys move towards a condition of a little bit more liquidity and starting to deploy some capital again, how are you guys thinking about providing seller financing on some of those property sales and realizing there is skepticism in the market about that, but at the same time, it does reduce some frictions for you and potentially allows you to lend in situations you understand pretty well? Yeah, look, I'm going to turn this to Priyanka in a minute, but we are going to be opportunistic about it. As a general statement, there's a lot of capital out there for people to buy, who've got reset bases on these assets and capital at pretty low spreads being driven by very low cost of capital on warehouse lines from the banks. We don't often have to do that, but if someone says, "Hey, take back some junior paper or subsidize something and we'll get you something that we believe on a present value basis is more attractive for our investors," we'll absolutely look at that, of course. Priyanka, I'm just going to hand it to you. Okay. Thanks, Richard. Yeah, Rick, another topic that comes up quite a lot on our end as we run through these processes, what we have found is our seller financing isn't necessarily going to be accretive to the pricing in terms of what our goals are. The sale price isn't necessarily going to go up because we are so focused on releasing the embedded book value and the equity that is in each of those positions. Frankly, because we are much lower leveraged than a lot of our peers who are offering seller financing, there is a lot of embedded equity on the sale. When we do the math, it doesn't usually pencil to provide seller financing. Terrific. Thank you guys very much for answering our questions this morning. Thank you. Your next question is from Marissa Lobo with UBS. Please go ahead. Good morning. Thanks for taking the question. Just speaking about resuming originations, can you review the timeline for that in context of the five risk-weighted population and the current rate environment? What are you looking for in terms of balance sheet performance, what are the milestones before you resume originations? Thanks, Marissa, for the question. I'll start and I'll let Priyanka or Richard chime in. I think as we've said before we get in a position to evaluate other capital allocation opportunities, including new origination, we really want to reduce the level of watchlist assets in the portfolio, continue to execute on our REO monetization activities, de-leverage the balance sheet, including not just our asset-level financings, but our term financing facility at the corporate level. The combination of all those things is going to put us in a position to start evaluating new origination opportunities. It's hard to pick a timeline because we don't unilaterally control certain of these actions. We think it's somewhere in the latter part of this year and early next year is when we think we'll be in a position to start redeploying capital into new originations. Okay. Thank you for that. I don't have anything to add to that. Okay. Just looking at the resolution of the San Francisco office loan at $0.63 on the dollar, can you speak to that relative to the other office five rated credits and just on the adequacy of reserves on those? Yeah. Thanks for that question. As we said in our prepared remarks, that was a February 2020 origination. As we all know in this industry, timing is most everything. It was a very high basis and just the timing really could not be more challenging. I think what we did really well, though, was exhibit some patience because if we had sold this loan a year ago, I think market clearing price was probably half of what it ultimately was. Our goal was, as San Francisco was improving, we wanted to get out on the front end of a lender-driven sale process to really garner interest. Richard alluded to this earlier, the bid sheet on this was so deep, and that just simply wouldn't have been the case prior. Maybe there potentially were less than dollars on the table if we had waited a little bit. I think really getting in early and having everybody interested in one of the more early lender-driven opportunities was really helpful to us. I think that asset was very unique because of the market it's in. You will notice that we did take specific additional reserves on two of the other office buildings. Those are informed by us being in the market today. Those were very live updates. We think we're appropriately reserved on those. That really leaves only two other office assets in our entire portfolio. Those are very unique in each of their markets and really fall in the have versus have-not categories. It falls very much into the haves in terms of newly renovated amenity base that tenants require. Overall, we think we're well reserved. That San Francisco loan was just a unique situation because of timing. Got it. I appreciate the detailed answer. Thank you. Thank you for the question. Your next question comes from the line of John Nickodemus with BTIG. Please go ahead. Hello, thanks for the time today. I know there were some ups and downs in the quarter on the leverage side. Sounds like that's coming down post-quarter end. Also noticed net interest income dipped slightly negative during the quarter. Given some of the de-leveraging efforts that have already occurred in the third quarter thus far and what's planned to be underway for the second half of the year, how could we see net interest income trend as we head toward the end of 2026? Thank you. Thanks, John. Appreciate the question. I think a couple of drivers of that. I think it's important to keep in mind that about 1/3 of our interest expense relates to our corporate term loan financing. We entered into that financing back in January of this year to take out our old term loan. Our objective on that is to sort of pay that down as quickly as reasonably possible, along with continuing to repay financings on our other direct asset financing facilities. With that backdrop, I think it's important to highlight that any time we resolve a watchlist loan or an underperforming asset and pay off related financing, that'll improve our net interest income by reducing interest expense. Any kind of direct de-leveraging as well from regular way repayments, even though it may reduce interest on performing loans, may reduce interest income. By utilizing the aggregate recovery from that to de-lever, that will also have the impact of reducing interest expense as well. It's hard to predict exactly how that's going to lay out, but I think as we continue to resolve assets, particularly watchlist assets, de-leverage the portfolio, and get ourselves into a position to rebuild the portfolio and pay off the term loan, that will ultimately be a catalyst for improving NOI and net investment income on the loan portfolio in time. Great. Really appreciate that detail, Mike. That's super helpful. Yeah. Just a follow-up from me, to dovetail off my prior question, but given the pro forma figures you provided on page five of your supplemental, we've seen the loan portfolio come down by around $1 billion - $3.1 billion as of the release. Just curious, based on your current plans, your current outlook for the rest of the year, how low could we see the portfolio size drop to by the end of 2026? Thank you. I think I'll start and then I'll let Priyanka chime in. Obviously, while we're working through regular way repayments on a large percentage of the performing loan portfolio, in our objective of sort of moving out of some of the five and five-rated loans, I think you're going to see the portfolio shrink pretty significantly. Whether that occurs by the end of the year or sometime in early 2027 remains to be seen. We've got a number of loans in the performing loan category where borrowers are actively working on refinancings or asset sales, so we would expect to be paid off on those. As we've said, our priorities are really to try to turn over the portfolio and eliminate the four and five-rated loans in time through these various sale processes. Hard to pick a number, but fair to say it will continue to decline until we're back in origination mode and can start rebuilding the loan portfolio. Yeah. The only thing I would add to that is it's almost $1 billion worth of activity that's either actively being sold or refinanced by our borrowers or lender-driven sales that we've been discussing for the last quarter and a half. There's a lot that is out there that could occur. We all understand the very volatile environment we're operating in, I don't think it's all going to happen by end of the year or first quarter 2027, but it could be. I certainly agree with Mike that it's going to be a significant decline from where we are on a percentage basis. Great. Really appreciate the time, Priyanka and Mike, That's all from me. Awesome. Thanks, John. Thank you. Your next question is from the line of Jade Rahmani with KBW. Please go ahead. Thank you. Relative to your first quarter expectations, did things get worse or better, or maybe not much different during the quarter on credit? I'll start on credit. I think the only thing from my perspective that got worse is meeting buyer expectations out in the market. Their return expectations have certainly increased since the beginning of this year and even at the end of the first quarter. They're underwriting to higher returns, which obviously means that to meet the market, we have to bring our pricing down, and that is what you're seeing reflected in our book value today that we reported. That has been disappointing, but I would say everything else in terms of pace, billions of dollars of resolutions year to date. We had $2.5 billion last year, and that was a very active year. The pace of transactions feels good, and particularly since we're saying we are going to meet the market in most cases, I overall feel like we're well-positioned to execute on our stated objectives. Jade, let me just add. Richard, do you have a. Sorry. Jade, just. Go ahead. I was going to add one thing, then I'll take your question. Sorry. I was just going to say that on the refinancing side, for our performing loans, that has been very strong, and that's where we received repayments. It's kind of one of these bifurcated markets where the things that are performing, there's a lot of capital to refinance them, and the things that are not performing, there's a lot of volatility in the bid. Sorry, Jade, please go ahead. Do you have a range in mind of where book value might trough? I don't know that we want to answer that question. Mike, maybe you want to. No, I think. I think we I'll give it a shot. I can't really provide a specific answer to that, Jade, but I think we feel like we've taken some pretty significant write-downs based on the active sale processes that we're engaged in right now. I think I feel pretty good about that. Obviously, if we continue to have operating losses for a few quarters, that'll continue to diminish book value. I feel like we've got a good chunk of this behind us, but until these assets are moved out of the portfolio, I think it's too early to call a bottom. I think we've taken some pretty aggressive steps this quarter. Okay. How do you feel about multifamily? I think that some of the commercial mortgage REITs have had a decent loss severity in multifamily. Yet others either have had minimal losses on their risk 4 or 5-rated multifamily loans or maybe in the 5%-10% range. In general, it's probably lower loss severity than what we've seen in office. Do you think that is about to change because the higher rate environment is going to weigh on multifamily valuations? Or do you think that people are seeing more supply absorption, so feeling positive about 2027? Okay. That's a very good question and a very difficult one to answer. This is a very market-specific issue. I think if we look to the Sun Belt, we are going to continue to have elevated deliveries. 2026 and 2027, you're going to have 400,000 units delivered in the U.S. 60% of that is the Sun Belt. Average deliveries in the U.S. have been about 280,000. We have elevated deliveries across the U.S., particularly in the Sun Belt, but we have very strong absorption. However, we see deportation, and people going reverse migration, especially in the Sun Belt, the lower quality assets, which is weighing on the market. We see markets like L.A. and Seattle, where they can't get their act together from a government perspective, where valuations are down. Yet we see markets like New York where rent increases are incredibly strong and cap rates are very low. It is really sub-market by sub-market specific as it relates to demand, rental growth, supply, and as a result, cap rates. Then you layer on the interest rates, which create more volatility. I think the reason that you are seeing disparate results in multifamily is that it's used as a quasi fixed-income asset. There's a lot of volatility in rates, and there's also a lot of volatility in the supply and demand picture in all of these various markets. It's very hard to pin this down other than to go market by market and discuss the supply-demand balances or imbalances in each one of those markets. Most of the exposure is in the Sun Belt. Do you think cap rates in the Sun Belt multifamily are going to be increasing? If interest rates continue to go up, I think you will see increases. If we have stable interest rates, I think there is at least optimism looking out to the end of 2027 or at really just looking at starts which have dropped off, that the only good news is that starts have dropped off. Deliveries continue, but starts have really dropped off. It's a question of people looking forward to that. People have been more aggressive in looking forward to that drop-off in starts when rates have made them optimistic. As rates make them pessimistic, they're less willing to. I think it's stable to down until there's rate movement. Okay. Rate movement down, I should say. Thanks very much. Appreciate it. Thank you. This concludes the question and answer session. I will now turn the call over back to Richard Mack for closing remarks. I want to thank you all again for joining us. It was a tough but productive quarter for CMTG. This year, we had $1 billion of resolutions already reflecting the availability of financing in the market. The still large bid-ask spreads, volatility of pricing, and concerns around interest rates, which has been keeping transaction volume at a modest level, but hopefully improving. We're going to continue to navigate this environment with hard work and hard decisions to turn the book and get back to the business of capital allocation. Thank you again for joining us. This concludes today's call. Thank you for attending. You may now disconnect.