UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-40993
Claros Mortgage Trust, Inc.
(Exact Name of Registrant as Specified in its Charter)
Maryland
47-4074900
(State or other jurisdiction of
incorporation or organization)
(I.R.S. EmployerIdentification No.)
c/o Mack Real Estate Credit Strategies, L.P.
60 Columbus Circle, 20th Floor, New York, NY
10023
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (212) 484-0050
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
CMTG
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 2, 2023, the registrant had 138,376,144 shares of common stock, $0.01 par value per share, outstanding.
Table of Contents
Page
PART I.
FINANCIAL INFORMATION
3
Item 1.
Financial Statements (Unaudited)
Consolidated Balance Sheets
Consolidated Statements of Operations
4
Consolidated Statements of Changes in Equity
5
Consolidated Statements of Cash Flows
6
Notes to Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
29
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
47
Item 4.
Controls and Procedures
50
PART II.
OTHER INFORMATION
Legal Proceedings
51
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
52
Signatures
54
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
(unaudited, in thousands, except share data)
March 31, 2023
December 31, 2022
Assets
Cash and cash equivalents
$
426,503
306,456
Restricted cash
39,598
41,703
Loan principal payments held by servicer
912
-
Loans receivable held-for-investment
7,610,620
7,489,074
Less: current expected credit loss reserve
(127,626
)
(128,647
Loans receivable held-for-investment, net
7,482,994
7,360,427
Equity method investment
43,443
41,880
Real estate owned, net
399,807
401,189
Other assets
91,163
89,858
Total assets
8,484,420
8,241,513
Liabilities and Equity
Repurchase agreements
4,112,004
3,966,859
Term participation facility
340,154
257,531
Loan participations sold, net
263,940
263,798
Notes payable, net
176,710
149,521
Secured term loan, net
736,190
736,853
Debt related to real estate owned, net
289,520
289,389
Other liabilities
58,130
59,223
Dividends payable
52,404
52,001
Management fee payable - affiliate
9,656
9,867
Incentive fee payable - affiliate
1,558
Total liabilities
6,040,266
5,785,042
Commitments and contingencies - Note 14
Equity
Common stock, $0.01 par value, 500,000,000 shares authorized, 140,055,714 shares issued and 138,376,144 shares outstanding at March 31, 2023 and December 31, 2022, respectively
1,400
Additional paid-in capital
2,715,725
2,712,316
Accumulated deficit
(272,971
(257,245
Total equity
2,444,154
2,456,471
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
(unaudited, in thousands, except share and per share data)
Three Months Ended
March 31, 2022
Revenue
Interest and related income
164,166
90,694
Less: interest and related expense
106,027
39,580
Net interest income
58,139
51,114
Revenue from real estate owned
10,963
6,813
Total revenue
69,102
57,927
Expenses
Management fees - affiliate
9,807
Incentive fees - affiliate
General and administrative expenses
4,923
4,343
Stock-based compensation expense
3,366
Real estate owned:
Operating expenses
10,000
7,780
Interest expense
5,444
2,584
Depreciation
2,058
1,940
Total expenses
37,005
26,454
Proceeds from interest rate cap
1,183
Unrealized loss on interest rate cap
(1,404
Income from equity method investment
1,563
Reversal of (provision for) current expected credit loss reserve
3,239
(2,102
Net income
36,678
29,371
Net loss attributable to non-controlling interests
(41
Net income attributable to common stock
29,412
Net income per share of common stock:
Basic and diluted
0.26
0.21
Weighted-average shares of common stock outstanding:
138,385,810
139,712,501
Common Stock
Additional
Shares
Par Value
Repurchased Shares
Paid-In Capital
Accumulated Deficit
Total Equity
Balance at December 31, 2022
140,055,714
(1,679,570
3,409
Dividends declared
(52,404
Balance at March 31, 2023
Non-
controlling Interests
Balance at December 31, 2021
(215,626
2,726,190
(160,959
37,636
2,604,267
(186,289
(3,179
Contributions from non-controlling interests
539
Offering costs
(30
(51,672
Net income (loss)
Balance at March 31, 2022
(401,915
2,722,981
(183,219
38,134
2,579,296
(unaudited, in thousands)
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion of origination fees on loans receivable
(5,247
(4,304
Accretion of origination fees on interests in loans receivable
(204
Amortization of deferred financing costs
5,967
4,632
Non-cash stock-based compensation expense
Depreciation on real estate owned
1,404
(1,563
Non-cash advances on loans receivable in lieu of interest
(22,376
(13,507
Non-cash advances on interests in loans receivable in lieu of interest
(2,427
Non-cash advances on secured financings in lieu of interest
478
Repayment of non-cash advances on loans receivable in lieu of interest
2,114
10,745
Repayment of non-cash advances on interests in loans receivable in lieu of interest
1,834
(Reversal of) provision for current expected credit loss reserve
(3,239
2,102
Changes in operating assets and liabilities:
(2,648
(8,170
1,125
784
(211
(176
Net cash provided by operating activities
19,507
22,620
Cash flows from investing activities
Loan originations, acquisitions and advances, net of fees
(305,658
(782,806
Advances of interests in loans receivable
(14,653
Repayments of loans receivable
207,761
302,437
Repayments of interests in loans receivable
23,971
Extension and exit fees received from loans receivable
948
1,095
Extension and exit fees received from interests in loans receivable
65
Reserves and deposits held for loans receivable
13,303
Capital expenditures on real estate owned
(676
Net cash used in investing activities
(97,625
(456,588
Cash flows from financing activities
Repurchase of common stock
(300
Dividends paid
(52,001
(51,741
Proceeds from secured financings
603,173
999,441
Payment of deferred financing costs
(4,215
(4,928
Repayments of secured financings
(348,990
(370,953
Repayments of secured term loan
(1,907
Net cash provided by financing activities
196,060
566,972
Net increase in cash, cash equivalents and restricted cash
117,942
133,004
Cash, cash equivalents and restricted cash, beginning of period
348,159
334,136
Cash, cash equivalents and restricted cash, end of period
466,101
467,140
Cash and cash equivalents, end of period
444,001
Restricted cash, end of period
23,139
Supplemental disclosure of cash flow information:
Cash paid for interest
102,755
36,167
Supplemental disclosure of non-cash investing and financing activities:
Dividends accrued
51,672
9,999
Accrued deferred financing costs
3,750
6,250
7
(unaudited)
Note 1. Organization
Claros Mortgage Trust, Inc. (referred to throughout this report as the “Company,” “we”, “us” and “our”) is a Maryland Corporation formed on April 29, 2015 for the purpose of creating a diversified portfolio of income-producing loans collateralized by institutional quality commercial real estate. We commenced operations on August 25, 2015 (“Commencement of Operations”) and generally conduct our business through wholly-owned subsidiaries. Unless the context requires otherwise, any references to the Company refers to the Company and its consolidated subsidiaries. The Company is traded on the New York Stock Exchange, or NYSE, under the symbol “CMTG”.
We elected and intend to maintain our qualification to be taxed as a real estate investment trust (“REIT”) under the requirements of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), for U.S. federal income tax purposes. As such, we generally are not subject to U.S. federal income tax on that portion of our income that we distribute to stockholders. See Note 13 – Income Taxes regarding taxes applicable to the Company.
We are externally managed by Claros REIT Management LP (the “Manager”), our affiliate, through a management agreement (the "Management Agreement") pursuant to which the Manager provides a management team and other professionals who are responsible for implementing our business strategy, subject to the supervision of our board of directors (the "Board"). In exchange for its services, the Manager is entitled to management fees and incentive fees. See Note 11 – Related Party Transactions regarding the Management Agreement.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
These unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of our financial position, results of operations and cash flows have been included. Our results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year or any other future period.
We consolidate all entities that are controlled either through majority ownership or voting rights. We also identify entities for which control is achieved through means other than through voting rights (a variable interest entity or "VIE") using the analysis as set forth in Accounting Standards Codification ("ASC") 810, Consolidation of Variable Interest Entities, and determine when and which variable interest holder, if any, should consolidate the VIE. We have no consolidated variable interest entities as of March 31, 2023 and December 31, 2022. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Estimates that are particularly susceptible to our judgment include, but are not limited to, the adequacy of current expected credit loss reserve and impairment of certain assets.
Risks and Uncertainties
In the normal course of business, we primarily encounter two significant types of economic risk: credit and market. Credit risk is the risk of default on our loans receivable that results from a borrower's or counterparty's inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of the loans receivable due to changes in interest rates, spreads or other market factors, including risks that impact the value of the collateral underlying our loans. We believe that the carrying values of our
loans receivable are reasonable taking into consideration these risks along with estimated financings, collateral values and other information.
Current Expected Credit Losses
The current expected credit loss (“CECL”) reserve required under ASU 2016-13 “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments (Topic 326)” (“ASU 2016-13”), reflects our current estimate of potential credit losses related to our loan portfolio. Changes to the CECL reserve are recognized through a provision for or reversal of current expected credit loss reserve on our consolidated statements of operations. ASU 2016-13 specifies the reserve should be based on relevant information about past events, including historical loss experience, current portfolio, market conditions and reasonable and supportable macroeconomic forecasts for the duration of each loan.
General CECL Reserve
Our loans are typically collateralized by real estate, or in the case of mezzanine loans, by an equity interest in an entity that owns real estate. We consider key credit quality indicators in underwriting loans and estimating credit losses, including, but not limited to: the capitalization of borrowers and sponsors; the expertise of the borrowers and sponsors in a particular real estate sector and geographic market; collateral type; geographic region; use and occupancy of the property; property market value; loan-to-value (“LTV”) ratio; loan amount and lien position; our risk rating for the same and similar loans; and prior experience with the borrower and sponsor. This information is used to assess the financial and operating capability, experience and profitability of the borrower/sponsor. Ultimate repayment of our loans is sensitive to interest rate changes, general economic conditions, liquidity, LTV ratio, existence of a liquid investment sales market for commercial properties, and availability of replacement financing.
We regularly evaluate on a loan-by-loan basis, the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property, the financial and operating capability of the borrower/sponsor, the financial strength of loan guarantors, if any, and the overall economic environment, real estate sector, and geographic sub-market in which the borrower operates, at least quarterly. Such analyses are completed and reviewed by asset management personnel and evaluated by senior management, utilizing various data sources, including, to the extent available (i) periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, and capitalization and discount rates, (ii) site inspections, (iii) sales and financing comparables, (iv) current credit spreads for refinancing and (v) other market data.
We arrive at our general CECL reserve using the Weighted Average Remaining Maturity, or WARM method, which is an acceptable loss-rate method for estimating CECL reserves by the Financial Accounting Standards Board ("FASB"). The application of the WARM method to estimate a general CECL reserve requires judgment, including the appropriate historical loan loss reference data, the expected timing and amount of future loan fundings and repayments, the current credit quality of our portfolio, and our expectations of performance and market conditions over the relevant time period.
The WARM method requires us to reference historical loan loss data from a comparable data set and apply such loss rate to each of our loans over their expected remaining term, taking into consideration expected economic conditions over the forecasted timeframe. Our general CECL reserve reflects our forecast of the current and future macroeconomic conditions that may impact the performance of the commercial real estate assets securing our loans and the borrower's ultimate ability to repay. These estimates include unemployment rates, price indices for commercial properties, and market liquidity, all of which may influence the likelihood and magnitude of potential credit losses for our loans during their anticipated term. Additionally, further adjustments may be made based upon loan positions senior to ours, the risk rating of a loan, whether a loan is a construction loan, or the economic conditions specific to the property type of a loan's underlying collateral.
To estimate an annual historical loss rate, we obtained historical loss rate data for loans most comparable to our loan portfolio from a commercial mortgage-backed securities database licensed by a third party, Trepp, LLC, which contains historical loss rates from January 1, 1999 through March 31, 2023.
When evaluating the current and future macroeconomic environment, we consider the aforementioned macroeconomic factors. Historical data for each metric is compared to historical commercial real estate loan losses in order to determine the relationship between the two variables. We use projections of each macroeconomic factor, obtained from a third party, to approximate the impact the macroeconomic outlook may have on our loss rate. Selections of these economic forecasts require judgement about future events that, while based on the information available to us as of the balance sheet date, are ultimately unknowable with certainty, and the actual economic conditions could vary significantly from the estimates we made. Following a reasonable and supportable forecast period, we use a straight-line method of reverting to the historical loss rate. Additionally, we assess the obligation to extend credit through our unfunded loan commitments over each loan’s contractual period, adjusted for projected fundings from interest reserves if applicable,
9
which is considered in the estimate of the general CECL reserve. For both the funded and unfunded portions of our loans, we consider our internal risk rating of each loan as the primary credit quality indicator underlying our assessment.
We evaluate the credit quality of each of our loans receivable on an individual basis and assign a risk rating at least quarterly. We have developed a loan grading system for all of our outstanding loans receivable that are collateralized directly or indirectly by real estate. Grading criteria include as-is or as-stabilized debt yield, term of loan, property type, property or collateral location, loan type and other more subjective variables that include as-is or as-stabilized collateral value, market conditions, industry conditions and sponsor’s financial stability. We utilize the grading system to determine each loan’s risk of loss and to provide a determination as to whether an individual loan is impaired and whether a specific CECL reserve is necessary. Based on a 5-point scale, the loans are graded “1” through “5,” from less risk to greater risk, which gradings are defined as follows:
Specific CECL Reserve
In certain circumstances we may determine that a loan is no longer suited for the WARM method due to its unique risk characteristics, where we have deemed the borrower/sponsor to be experiencing financial difficulty and the repayment of the loan’s principal is collateral-dependent. We may instead elect to employ different methods to estimate loan losses that also conform to ASU 2016-13 and related guidance. For such loan we would separately measure the specific reserve for each loan by using the fair value of the loan's collateral. If the fair value of the collateral is less than the carrying value of the loan, an asset-specific reserve is created as a component of our overall current expected credit loss reserve. Specific reserves are equal to the excess of a loan’s carrying value to the fair value of the collateral, less estimated costs to sell, if recovery of our investment is expected from the sale of the collateral.
If we have determined that a loan or a portion of a loan is uncollectible, we will write off such portion of the loan through an adjustment to our current expected credit loss reserve. Significant judgment is required in determining impairment and in estimating the resulting credit loss reserve, and actual losses, if any, could materially differ from those estimates.
For additional information on our General and Specific CECL Reserve please refer to Note 3—"Loans Portfolio—Current Expected Credit Losses”.
Real Estate Owned (and Related Debt)
We may assume legal title or physical possession of the underlying collateral of a defaulted loan through foreclosure. If we intend to hold, operate or develop the property for a period of at least 12 months, the asset is classified as real estate owned, net. If we intend to market a property for sale in the near subsequent term, the asset is classified as real estate held for sale. Real estate owned is initially recorded at estimated fair value and is subsequently presented net of accumulated depreciation. Depreciation is computed using a straight-line method over estimated useful lives ranging from 5 to 40 years.
Real estate assets are evaluated for indicators of impairment on a quarterly basis. Factors that we may consider in our impairment analysis include, among others: (1) significant underperformance relative to historical or anticipated operating results; (2) significant negative industry or economic trends; (3) costs necessary to extend the life or improve the real estate asset; (4) significant increase in competition; and (5) ability to hold and dispose of the real estate asset in the ordinary course of business. A real estate asset is considered impaired when the sum of estimated future undiscounted cash flows expected to be generated by the real estate asset over the estimated remaining holding period is less than the carrying amount of such real estate asset. Cash flows include operating cash flows and anticipated capital proceeds generated by the real estate asset. If the sum of such estimated cash flows is less than the carrying amount of the real estate asset, an impairment charge is recorded equal to the excess of the carrying value of the real estate asset over the fair value. When determining the fair value of a real estate asset, we make certain assumptions including, but not limited to, consideration of projected operating cash flows, comparable selling prices and projected cash flows from the eventual disposition of the real estate asset based upon our estimate of a capitalization rate and discount rate. There were no impairments of our real estate assets as of March 31, 2023.
Debt assumed in an acquisition/foreclosure of real estate is recorded at its estimated fair value at the time of the acquisition and is subsequently presented net of unamortized deferred financing costs. Debt related to real estate owned is non-recourse to us.
10
Equity Method Investment
We account for our investments in entities in which we have the ability to significantly influence, but do not have a controlling interest, by using the equity method of accounting. Under the equity method for which we have not elected a fair value option, the investment, originally recorded at cost, is adjusted to recognize our share of earnings or losses as they occur and for additional contributions made or distributions received. We look at the nature of the cash distributions received to determine the proper character of cash flow distributions on the accompanying consolidated statement of cash flows as either returns on investment, which would be included in operating activities, or returns of investment, which would be included in investing activities.
At each reporting period we assess whether there are any indicators of other than temporary impairment of our equity investments. There were no other than temporary impairments of our equity method investment as of March 31, 2023.
Derivative Financial Instruments
In the normal course of business, we are exposed to the effect of interest rate changes and may undertake a strategy to limit these risks through the use of derivatives. We may use derivatives primarily to reduce the impact that increases in interest rates will have on our floating rate liabilities, which may consist of interest rate swaps, interest rate caps, collars, and floors.
We recognize derivatives on our consolidated balance sheets at fair value within other assets. To determine the fair value of derivative instruments, we use a variety of methods and assumptions that are based on market conditions as of the balance sheet date, such as discounted cash flows and option-pricing models.
We have not designated any derivatives as hedges to qualify for hedge accounting for financial reporting purposes and fluctuations in the fair value of derivatives have been recognized as unrealized gain or loss on interest rate cap in our accompanying consolidated statements of operations. Payments received from our counterparties in connection with our derivative are recognized on our consolidated statements of operations as proceeds from interest rate cap.
Revenue Recognition
Interest income from loans receivable is recorded on the accrual basis based on the unpaid principal balance and the contractual terms of the loans. Recognition of fees, premiums, discounts and direct costs associated with these loans is deferred until the loan is advanced and is then amortized or accreted into interest income over the term of the loan as an adjustment to yield using the effective interest method based on expected cash flows through the expected recovery period. Income accrual may be suspended for loans when we determine that the payment of income and/or principal is no longer probable. Once income accrual is suspended, any previously recognized interest income deemed uncollectible is reversed against interest income. Factors considered when making this determination include our assessment of the underlying collateral value, delinquency in excess of 90 days, and overall market conditions. While on non-accrual status, based on our estimation as to collectability of principal, loans are either accounted for on a cash basis, where interest income is recognized only upon actual receipt of cash, or on a cost-recovery basis, where all cash receipts reduce a loan's carrying value. If and when a loan is brought back into compliance with its contractual terms, and our Manager has determined that the borrower has demonstrated an ability and willingness to continue to make contractually required payments related to the loan, we resume accrual of interest.
Revenue from real estate owned represents revenue associated with the operations of hotel properties classified as real estate owned. Revenue from the operations of the hotel properties is recognized when guestrooms are occupied, services have been rendered or fees have been earned. Revenues are recorded net of any discounts and sales and other taxes collected from customers. Revenues consist of room sales, food and beverage sales and other hotel revenues.
Recent Accounting Guidance
The FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures, (“ASU 2022-02”). The standard eliminates the recognition and measurement guidance for troubled debt restructurings (“TDRs”) for creditors that have adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, ("CECL"). In addition to eliminating the TDR accounting guidance, ASU 2022-02 changes existing disclosure requirements and introduces new disclosures related to certain modifications of instruments with borrowers experiencing financial difficulty. The standard is effective for periods beginning after December 15, 2022, with early adoption permitted. During the second quarter of 2022, we adopted this standard effective January 1, 2022 and the adoption did not have a material impact on our consolidated financial statements.
11
The FASB issued ASU 2019-12, Income Taxes (Topic 740), (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU 2019-12 also improves the consistent application of, and simplifies, GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2021, with early adoption permitted. We adopted ASU 2019-12 on January 1, 2022 and the adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.
Note 3. Loans Portfolio
Loans Receivable
Our loans receivable portfolio as of March 31, 2023 was comprised of the following loans ($ in thousands, except for number of loans):
Number ofLoans
Loan Commitment(1)
Unpaid Principal Balance
CarryingValue (2)
Weighted Average Spread(3)
Weighted Average Interest Rate(4)
Loans receivable held-for-investment:
Variable:
Senior loans(5)
71
9,134,655
7,476,142
7,371,134
+ 3.91%
8.37
%
Subordinate loans
1
30,200
29,407
29,496
+ 12.75%
17.61
72
9,164,855
7,505,549
7,400,630
+ 3.95%
8.41
Fixed:
23,813
24,000
N/A
8.53
125,927
125,690
8.49
149,740
149,690
8.50
Total/Weighted Average
76
9,314,595
7,655,289
7,550,320
General CECL reserve
(67,326
Our loans receivable portfolio as of December 31, 2022 was comprised of the following loans ($ in thousands, except for number of loans):
9,221,549
7,327,462
7,217,564
+ 3.92%
8.05
63,102
61,763
61,947
+ 11.55%
15.95
73
9,284,651
7,389,225
7,279,511
+ 3.98%
8.11
23,373
23,595
125,668
149,300
149,263
77
9,433,951
7,538,525
7,428,774
8.12
(68,347
12
Activity relating to the loans receivable portfolio for the three months ended March 31, 2023 ($ in thousands):
Deferred Fees
Carrying Value (1)
(49,451
(60,300
Initial funding of new loan originations and acquisitions
101,059
Advances on existing loans
204,599
Non-cash advances in lieu of interest
21,893
483
22,376
Origination fees, extension fees and exit fees
(948
(208,673
Repayments of non-cash advances in lieu of interest
(2,114
Accretion of fees
5,247
(44,669
Carrying Value
Through CMTG/TT Mortgage REIT LLC ("CMTG/TT"), a previously consolidated joint venture, we held a 51% interest in $78.5 million of subordinate loans secured by land in New York, which had been on non-accrual status since October 2021. During the third quarter of 2022, we directly acquired the senior position of the loan of $73.5 million and converted the whole loan from a land loan into a construction loan to finance the development of a hotel. The borrower simultaneously committed additional equity to the project. Immediately following the conversion of the loan, we own $115.3 million of total loan commitments, of which $78.5 million has been funded and is included in loans receivable held-for-investment on our consolidated balance sheet as of March 31, 2023, as well as 51% of the remaining $78.5 million of subordinate loans held through CMTG/TT which is accounted for under the equity method of accounting on our consolidated financial statements. See Note 4 - Equity Method Investment for further detail. The new loans accrue interest at the new contractual rates.
In the second quarter of 2022, we modified a loan with a borrower who was experiencing financial difficulties, resulting in a decrease in the index rate floor from 1.57% to 1.00% and modified extension requirements. In the first quarter of 2023, we further modified this loan to provide for a maturity extension to April 19, 2023, which was subsequently extended to May 19, 2023. As of March 31, 2023, the loan had an amortized cost basis of $87.8 million and represents approximately 1.2% of total loans receivable held-for-investment, net. The loan is considered in determining the general CECL reserve. As of March 31, 2023, the borrower is current on all contractually obligated payments.
13
Concentration of Risk
The following table presents our loans receivable portfolio by loan type, as well as property type and geographic location of the properties collateralizing these loans as of March 31, 2023 and December 31, 2022 ($ in thousands):
Loan Type
Percentage
Carrying Value (2)
Senior loans(3)
7,395,134
98
7,241,159
97
155,186
187,615
100
Property Type
Multifamily
3,012,443
40
3,044,892
41
Hospitality
1,565,401
21
1,551,946
20
Office
1,104,197
15
1,086,018
Mixed-Use (4)
612,346
615,599
Land
482,214
426,645
For Sale Condo
424,232
434,210
Other
349,487
269,464
Geographic Location
United States
West
2,518,728
33
2,450,710
Northeast
2,075,950
27
1,999,648
Southeast
1,046,378
14
1,008,590
Mid Atlantic
738,741
809,908
Southwest
698,955
694,887
Midwest
468,068
461,531
3,500
0
Interest Income and Accretion
The following table summarizes our interest and accretion income from loans receivable held-for-investment, from interests in loans receivable held-for-investment, and from interest on cash balances, for the three months ended March 31, 2023 and 2022, respectively ($ in thousands):
Coupon interest
156,616
86,186
Interest on cash, cash equivalents, and other income
2,303
4,508
Total interest and related income(1)
Loan Risk Ratings
As further described in Note 2 – Summary of Significant Accounting Policies, we evaluate the credit quality of our loan portfolio on a quarterly basis. In conjunction with our quarterly loan portfolio review, we assess the risk factors of each loan and assign a risk rating based on several factors. Factors considered in the assessment include, but are not limited to, current loan-to-value, debt yield, structure, cash flow volatility, exit plan, current market environment and sponsorship level. Loans are rated “1” (less risk) through “5” (greater risk), which ratings are defined in Note 2 – Summary of Significant Accounting Policies.
The following tables allocate the principal balance and carrying value of the loans receivable based on our internal risk ratings as of March 31, 2023 and December 31, 2022 ($ in thousands):
Risk Rating
Number of Loans
% of Total of Carrying Value
0%
191,436
189,533
3%
61
6,191,226
6,152,052
81%
921,601
918,430
12%
351,026
290,305
4%
100%
927
913
63
6,181,207
6,136,300
83%
1,005,345
1,001,235
13%
351,046
290,326
As of March 31, 2023 and December 31, 2022, the average risk rating of our portfolio was 3.2 and 3.2, respectively, weighted by unpaid principal balance.
The following table presents the carrying value and significant characteristics of our loans receivable on non-accrual status as of March 31, 2023 ($ in thousands):
Location
Carrying Value Before Specific CECL Reserve
SpecificCECL Reserve
Net Carrying Value
Interest Recognition Method / as of Date
Mixed-Use
NY
208,797
(42,007
166,790
Cash Basis / 11/1/2022(1)
VA
148,592
Cost Recovery / 1/1/2023
CA
138,729
138,308
(18,293
120,015
Cost Recovery / 12/1/2022(2)
67,000
Cash Basis / 11/1/2021
Cost Recovery / 7/1/2020
Total non-accrual (3)
566,618
566,197
505,897
The following table presents the carrying value and significant characteristics of our loans receivable on non-accrual status as of December 31, 2022 ($ in thousands):
138,749
138,329
120,036
Cost Recovery / 12/1/2022
Cash basis / 11/1/2021
Cost recovery / 7/1/2002
Total non-accrual (2)
418,046
417,626
357,326
The current expected credit loss reserve required under GAAP reflects our current estimate of potential credit losses related to our loan commitments. See Note 2 for further discussion of our current expected credit loss reserve.
During the three months ended March 31, 2023, we recorded a reversal of current expected credit losses of $3.2 million, resulting in a total current expected credit loss reserve of $143.1 million as of March 31, 2023. The decrease was primarily attributable to seasoning of our loan portfolio and a reduction in our loan portfolio's total commitments.
During the three months ended December 31, 2022, we recorded a specific CECL reserve of $42.0 million in connection with a senior loan with an unpaid principal balance and carrying value prior to any specific CECL reserve of $208.8 million and an initial maturity date of February 1, 2023. The loan is collateralized by a mixed-use building in New York, NY. As of March 31, 2023 and December 31, 2022, this loan is on non-accrual status.
During the three months ended December 31, 2022, we recorded a specific CECL reserve of $18.3 million in connection with a loan with an unpaid principal balance of $138.8 million, a carrying value prior to any specific CECL reserve of $138.3 million and an initial maturity date of August 8, 2024. The loan, which is comprised of a portfolio of uncrossed loans, is collateralized by a portfolio of multifamily properties located in San Francisco, CA. As of March 31, 2023 and December 31, 2022, the loan is on non-accrual status.
Fair market values used to determine specific CECL reserves are calculated using a discounted cash flow model, a sales comparison approach, or a market capitalization approach. Estimates of fair market values include assumptions of property specific
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cash flows over estimated holding periods, discount rates approximating 6.0%, and market capitalization rates ranging from 4.5% to 6.0%. These assumptions are based upon the nature of the properties, recent sales and lease comparables, and anticipated real estate and capital market conditions.
During the three months ended March 31, 2022, we recorded a provision for current expected credit losses of $2.1 million, resulting in a total current expected credit loss of $75.6 million as of March 31, 2022. The increase was primarily attributable to the increase in size of our portfolio and unfunded loan commitments. Additionally, we recorded a specific CECL reserve of $0.2 million on a senior loan with an outstanding principal balance of $8.6 million. During the fourth quarter of 2022, this loan was repaid, resulting in a principal charge off of $27,000.
The following table illustrates the quarterly changes in the current expected credit loss reserve for the three months ended March 31, 2023 and 2022, respectively ($ in thousands):
Loans Receivable Held-for-Investment
Interests in Loans Receivable Held-for-Investment
Accrued Interest Receivable
Unfunded Loan Commitments (1)
Total General CECL Reserve
Total CECL Reserve
Total reserve, December 31, 2021
6,333
60,677
218
6,286
67,195
73,528
Increase (reversal)
(133
(1,269
28
(218
3,694
2,235
Total reserve, March 31, 2022
6,200
59,408
42
9,980
69,430
75,630
Total reserve, December 31, 2022
60,300
68,347
17,715
86,062
146,362
Reversal
(1,021
(2,218
Total reserve, March 31, 2023
67,326
15,497
82,823
143,123
Reserve at March 31, 2023
0.8
1.1
1.9
Our primary credit quality indicator is our internal risk rating, which is further discussed above. The following table presents the carrying value of our loans receivable as of March 31, 2023 by year of origination and risk rating ($ in thousands):
Carrying Value by Origination Year as of March 31, 2023
2023
2022
2021
2020
2019
2018
31,938
156,676
919
100,572
2,157,243
1,762,515
191,508
1,318,638
621,576
78,248
166,147
112,163
233,217
328,655
123,515
2,267,429
1,928,662
303,671
1,832,046
1,117,940
The following table details overall statistics for our loans receivable ($ in thousands):
Weighted average yield to maturity
8.9
8.6
Weighted average term to fully extended maturity
3.1 years
3.2 years
Note 4. Equity Method Investment
On June 8, 2016, we acquired a 51% interest in CMTG/TT upon commencement of its operations. During its active investment period, CMTG/TT originated loans collateralized by institutional quality commercial real estate. CMTG/TT has been consolidated in our financial statements from its inception through July 31, 2022. On August 1, 2022, the sole remaining loan held by this joint venture was converted to a new construction loan. In connection with the conversion, we amended the operating agreement of CMTG/TT.
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Effective August 1, 2022, we are not deemed to be the primary beneficiary of CMTG/TT in accordance with ASC 810 and do not consolidate the joint venture. We did not recognize a gain or loss as this transaction occurred simultaneously with the conversion of the aforementioned loan, and thus there was no change in the underlying value of our 51% equity interest in CMTG/TT. See Note 3 for further details. As of March 31, 2023, the carrying value of our 51% equity interest in CMTG/TT approximated $43.4 million.
Note 5. Real Estate Owned, Net
On February 8, 2021, we acquired legal title to a portfolio of hotel properties located in New York, NY through a foreclosure. Prior to February 8, 2021, the hotel portfolio represented the collateral for a $103.9 million mezzanine loan held by us. The loan was in default as a result of the borrower failing to pay debt service. A $300.0 million securitized senior mortgage held by a third party was in default as well. The securitized senior mortgage is non-recourse to us.
The following table presents additional detail related to our real estate owned, net as of March 31, 2023 and December 31, 2022 ($ in thousands):
123,100
Building
284,400
Capital improvements
3,019
2,343
Furniture, fixtures and equipment
6,500
Real estate owned
417,019
416,343
Less: accumulated depreciation
(17,212
(15,154
Depreciation expense for the three months ended March 31, 2023 and 2022 was $2.1 million and $1.9 million, respectively.
Note 6. Debt Obligations
As of March 31, 2023 and December 31, 2022, we financed certain of our loans receivables using repurchase agreements, a term participation facility, the sale of loan participations, and notes payable. Further, we have a secured term loan and debt related to real estate owned. The financings bear interest at a rate equal to LIBOR/SOFR plus a credit spread or at a fixed rate.
The following table summarizes our financings as of March 31, 2023 and December 31, 2022 ($ in thousands):
Capacity
Borrowing Outstanding
WeightedAverageSpread(1)
Repurchase agreements and term participation facility(2)
5,859,683
4,201,457
+ 2.52%
5,700,000
4,012,818
+ 2.25%
Repurchase agreement - Side Car(2)
361,488
250,701
+ 5.23%
271,171
211,572
+ 4.51%
Loan participations sold
264,252
+ 3.64%
+ 3.68%
Notes payable
450,435
181,522
+ 3.05%
495,934
154,629
+ 3.09%
Secured Term Loan
753,183
+ 4.50%
755,090
Debt related to real estate owned
290,000
+ 2.78%
Total / weighted average
7,979,041
5,941,115
+ 2.96%
7,776,447
5,688,361
+ 2.75%
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Repurchase Agreements and Term Participation Facility
Repurchase Agreements
The following table summarizes our repurchase agreements by lender as of March 31, 2023 ($ in thousands):
Lender
Initial Maturity (1)
FullyExtendedMaturity
MaximumCapacity
BorrowingOutstanding and Carrying Value
UndrawnCapacity
CarryingValue ofCollateral(2)
JP Morgan Chase Bank, N.A. - Main Pool
6/29/2025
6/29/2027
1,659,683
1,457,859
201,824
1,969,601
JP Morgan Chase Bank, N.A. - Side Car
5/27/2023
5/27/2024
110,787
371,319
Morgan Stanley Bank, N.A.
1/26/2024
1/26/2025
1,000,000
848,243
151,757
1,192,799
Goldman Sachs Bank USA
5/31/2025
5/31/2027
500,000
219,889
280,111
293,389
Barclays Bank PLC
12/20/2024
12/20/2025
224,528
275,472
370,244
Deutsche Bank AG, New York Branch
6/26/2023
6/26/2026
400,000
365,180
34,820
600,861
Wells Fargo Bank, N.A.
9/29/2023
9/29/2026
800,000
745,604
54,396
957,891
Total
5,221,171
1,109,167
5,756,104
The following table summarizes our repurchase agreements by lender as of December 31, 2022 ($ in thousands):
Carrying Value of Collateral(2)
1,500,000
1,272,079
227,921
1,815,531
59,599
460,481
Morgan Stanley Bank, N.A.(3)
859,624
140,376
1,340,573
Goldman Sachs Bank USA (4)
5/31/2024
356,014
143,986
551,091
176,384
323,616
269,973
345,583
54,417
591,592
745,603
54,397
952,845
4,971,171
1,004,312
5,982,086
Term Participation Facility
On November 4, 2022, we entered into a master participation and administration agreement to finance certain of our mortgage loans. The lender has the benefit of cross-collateralization across the loans in the facility. The facility has a maximum committed amount of $1.0 billion. As of March 31, 2023, the facility had $535.1 million in commitments of which $340.2 million was outstanding. As of December 31, 2022, the facility had $481.4 million in commitments of which $257.5 million was outstanding. Per the terms of the agreement, we may finance loans on this facility until November 4, 2023, which is the end date of the facility's availability period. The
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term participation facility will mature five years after the date that the last asset is financed under the facility. As of March 31, 2023, the maturity date of the facility is February 17, 2028.
Our term participation facility as of March 31, 2023 is summarized as follows ($ in thousands):
Contractual Maturity Date
Carrying Value of Collateral
2/17/2028
492,401
Our term participation facility as of December 31, 2022 is summarized as follows ($ in thousands):
12/21/2027
375,769
Loan Participations Sold
Our loan participations sold as of March 31, 2023 are summarized as follows ($ in thousands):
ContractualMaturityDate
MaximumExtensionDate
CarryingValue
CarryingValue ofCollateral(1)
8/1/2023
138,322
281,263
10/18/2023
10/18/2024
105,930
105,730
192,429
12/31/2024
12/31/2025
20,000
19,888
630,368
Our loan participations sold as of December 31, 2022 are summarized as follows ($ in thousands):
CarryingValue ofCollateral (1)
281,123
105,645
192,355
19,831
157,833
631,311
Notes Payable
Our notes payable as of March 31, 2023 are summarized as follows ($ in thousands):
CarryingValue ofCollateral
103,593
102,608
2/2/2026
2/2/2027
34,081
33,095
41,347
6/30/2025
6/30/2026
18,631
18,213
31,937
9/2/2026
9/2/2027
(1,234
(1,763
11/22/2024
11/24/2026
23,300
22,815
35,671
10/13/2025
10/13/2026
1,917
1,213
16,246
280,114
Our notes payable as of December 31, 2022 are summarized as follows ($ in thousands):
103,592
102,467
28,288
27,292
34,199
4,777
4,354
16,290
16,055
25,403
1,145
5,749
237,711
Secured Term Loan, Net
On August 9, 2019, we entered into a $450.0 million secured term loan. On December 1, 2020, the secured term loan was modified to increase the aggregate principal amount by $325.0 million, increase the interest rate, and to increase the quarterly amortization payment. On December 2, 2021, we entered into a modification of our secured term loan which reduced the interest rate to the greater of (i) one-month term SOFR plus a 0.10% credit spread adjustment, and (ii) 0.50%, plus a credit spread of 4.50%.
The secured term loan as of March 31, 2023 is summarized as follows ($ in thousands):
Stated Rate (1)
Interest Rate
8/9/2026
S + 4.50%
9.40%
The secured term loan as of December 31, 2022 is summarized as follows ($ in thousands):
8.96%
The secured term loan is partially amortizing, with principal payments of $1.9 million due in quarterly installments.
Debt Related to Real Estate Owned, Net
On February 8, 2021 we assumed a $300.0 million securitized senior mortgage in connection with a Uniform Commercial Code foreclosure on a portfolio of seven limited service hotels.
Our debt related to real estate owned as of March 31, 2023 is summarized as follows ($ in thousands):
Net Interest Rate (1)
2/9/2024
L + 2.78%
5.78%
Our debt related to real estate owned as of December 31, 2022 is summarized as follows ($ in thousands):
Acquisition Facility
On June 29, 2022, we entered into a $150.0 million, full recourse credit facility. The facility generally provides interim financing for eligible loans for up to 180 days at an initial advance rate of 75%, which begins to decline after the 90th day. The facility matures on June 29, 2025 and earns interest at a rate of one-month term SOFR, plus a 0.10% credit spread adjustment, plus a spread of 2.25%. With the consent of our lenders, and subject to certain conditions, the commitment of the facility may be increased up to $500.0 million. As of March 31, 2023 and December 31, 2022, the outstanding balance of the facility was $0.
Interest Expense and Amortization
The following table summarizes our interest and amortization expense on secured financings, debt related to real estate owned and on the secured term loan for the three months ended March 31, 2023 and 2022, respectively ($ in thousands):
Interest expense on secured financings
82,950
25,411
Interest expense on secured term loan
17,241
9,559
Interest expense on debt related to real estate owned (1)
5,836
4,610
Total interest and related expense
111,471
42,164
Financial Covenants
Our financing agreements generally contain certain financial covenants that subject us to: (i) our ratio of earnings before interest, taxes, depreciation, and amortization, to interest charges, as defined in the agreements, shall be not less than 1.5 to 1.0; (ii) our tangible net worth, as defined in the agreements, shall not be less than $2.1 billion as of each measurement date plus 75% of proceeds from future equity issuances; (iii) cash liquidity shall not be less than the greater of (x) $50 million or (y) 5% of our recourse indebtedness; and (iv) our indebtedness shall not exceed 77.8% of our total assets. As of March 31, 2023 and December 31, 2022, we are in compliance with all covenants under our financing agreements. The foregoing requirements are based upon the most restrictive financial covenants in place as of the reporting date.
Note 7. Derivatives
As part of the agreement to amend the terms of our debt related to real estate owned on June 2, 2021, we acquired an interest rate cap with a notional amount of $290.0 million and a maturity date of February 15, 2024 for $275,000.
The interest rate cap effectively limits the maximum interest rate of our debt related to real estate owned to 5.78%. Changes in the fair value of our interest rate cap are recorded as an unrealized gain or loss on interest rate cap on our consolidated statements of operations and the fair value is recorded in other assets on our consolidated balance sheets. Proceeds received from our counterparty related to the interest rate cap are recorded as proceeds from interest rate cap on our consolidated statements of operations. The fair value of the interest rate cap is $4.6 million and $6.0 million at March 31, 2023 and December 31, 2022, respectively. During the three months ended March 31, 2023 and 2022, we recognized $1.2 million and $0 of proceeds from interest rate cap.
Note 8. Fair Value Measurements
ASC 820, “Fair Value Measurement and Disclosures” establishes a framework for measuring fair value as well as disclosures about fair value measurements. It emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use when pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, the standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability other than quoted prices, such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement fall is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
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Financial Instruments Reported at Fair Value
The fair value of our interest rate cap is determined by using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the interest rate cap. The variable interest rates used in the calculation of projected receipts on the interest rate cap are based on a third-party expert's expectation of future interest rates derived from observable market interest rate curves and volatilities. Our interest rate cap is classified as Level 2 in the fair value hierarchy and is valued at $4.6 million at March 31, 2023 and $6.0 million at December 31, 2022.
Financial Instruments Not Reported at Fair Value
The carrying value and estimated fair value of financial instruments not recorded at fair value on a recurring basis but required to be disclosed at fair value were as follows ($ in thousands):
Carrying
Unpaid Principal
Fair Value Hierarchy Level
Value
Balance
Fair Value
Level 1
Level 2
Level 3
7,457,711
336,530
262,455
179,365
651,503
286,364
7,331,207
255,296
261,417
153,282
743,764
281,568
Note 9. Equity
Our charter provides for the issuance of up to 500,000,000 shares of common stock with a par value of $0.01 per share. We had 140,055,714 shares of common stock issued and 138,376,144 shares of common stock outstanding as of March 31, 2023 and December 31, 2022, respectively.
The following table provides a summary of the number of shares of common stock outstanding during the three months ended March 31, 2023 and 2022, respectively, including redeemable common stock:
Common Stock Outstanding
Beginning balance
138,376,144
139,840,088
Ending balance
139,653,799
We entered into an agreement (the “10b5-1 Purchase Plan”) with Morgan Stanley & Co. LLC, pursuant to which Morgan Stanley & Co. LLC, as our agent, would buy in the open market up to $25.0 million of our common stock in the aggregate during the period beginning on December 6, 2021 and ending at the earlier of 12 months and the date on which all the capital committed to the 10b5-1
23
Purchase Plan is expended. The 10b5-1 Purchase Plan required Morgan Stanley & Co. LLC to purchase shares of our common stock on our behalf when the market price per share was below the book value per common stock, subject to certain daily limits prescribed by the 10b5-1 Purchase Plan. For the period from December 6, 2021 through October 24, 2022, our full $25.0 million commitment was used to repurchase 1,679,570 shares of common stock at an average price per share of $14.88. As of December 31, 2022, all of the capital committed to the 10b5-1 Purchase Plan was expended.
Dividends
The following tables detail our dividend activity for common stock ($ in thousands, except per share data):
For the Quarter Ended
Amount
Per Share
Dividends declared - common stock
51,199
0.37
Record Date - common stock
Payment Date - common stock
April 14, 2023
April 15, 2022
Note 10. Earnings Per Share
We calculate basic earnings per share (“EPS”) using the two-class method, which defines unvested share-based payment awards that contain nonforfeitable rights to dividends as participating securities. Under the two-class method, earnings (distributed and undistributed) are allocated to common stock and participating securities based on their respective rights. Basic EPS is calculated by dividing our net income attributable to common stockholders minus participating securities' share in earnings by the weighted average number of shares of common stock outstanding during each period.
Diluted EPS is calculated under the more dilutive of the treasury stock or the two-class method. Under the treasury stock method, diluted EPS is calculated by dividing net income attributable to common stockholders by the weighted average number of shares of common stock outstanding plus the incremental potential shares of common stock assumed issued during the period if they are dilutive.
As of March 31, 2023 and 2022, we had no dilutive securities. As a result, basic and diluted EPS are the same. The calculation of basic and diluted EPS is as follows ($ in thousands, except for share and per share data):
Net income attributable to common stockholders
Dividends on participating securities
(1,201
Participating securities' share in earnings
Basic earnings
35,477
Weighted average shares of common stock outstanding, basic and diluted (1)
Net income per share of common stock, basic and diluted
For the three months ended March 31, 2023 and 2022, 2,183,169 and 0 weighted average RSUs, respectively, were excluded from the calculation of diluted EPS because the effect was anti-dilutive.
Note 11. Related Party Transactions
Our activities are managed by the Manager. Pursuant to the terms of the Management Agreement, the Manager is responsible for originating investment opportunities, providing asset management services and administering our day-to-day operations. The Manager is entitled to receive a management fee, an incentive fee and a termination fee as defined below.
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The following table summarizes our management fees ($ in thousands):
Management fees
Incentive fees
11,214
Management Fees
Effective October 1, 2015, the Manager earns a base management fee in an amount equal to 1.50% per annum of Stockholders’ Equity, as defined in the Management Agreement. Management fees are reduced by our pro rata share of any management fees and incentive fees (if incentive fees are not incurred by us) incurred to the Manager by CMTG/TT. Management fees are paid quarterly, in arrears. Management fees of $9.7 million and $9.9 million were accrued and were included in management fee payable – affiliate, on the consolidated balance sheets at March 31, 2023 and December 31, 2022, respectively.
On August 2, 2022 our Management Agreement was amended and restated, primarily to provide for reimbursement of allocable costs, including compensation of the Manager’s non-investment professionals, to provide for automatic one-year renewals of the agreement following its original expiration date, unless it is otherwise terminated by our Board, and to remove historical provisions that are no longer relevant to our business and certain reporting requirements that are not customary for a public company.
Incentive Fees
The Manager is entitled to an incentive fee equal to 20% of the excess of our Core Earnings on a rolling four-quarter basis, as defined in the Management Agreement, over a 7.00% return on Stockholders’ Equity. Incentive fees are reduced by our pro rata share of any incentive fees incurred to the Manager by CMTG/TT. Incentive fees of $1.6 million and $0 were accrued and were included in incentive fee payable – affiliate, on the consolidated balance sheets at March 31, 2023 and December 31, 2022, respectively.
The Manager is entitled to an incentive fee equal to 3.33% of the excess of CMTG/TT’s Core Earnings on a rolling four-quarter basis, as defined in the Management Agreement, over a 7.00% return on Unitholders’ Equity of CMTG/TT, as defined in the Management Agreement.
Termination Fees
If we elect to terminate the Management Agreement, we are required to pay the Manager a termination fee equal to three times the sum of the average total annual amount of management fees and the average annual incentive fee paid by us over the prior two years.
Reimbursable Expenses
The Manager or its affiliates are entitled to reimbursement for certain documented costs and expenses incurred by them on our behalf, as set forth in the Management Agreement, excluding any expenses specifically required to be borne by the Manager under the Management Agreement. For the three months ended March 31, 2023 and 2022, we incurred $0.7 million and $0.1 million of reimbursements of out-of-pocket costs incurred on our behalf by our Manager, respectively, which are included in general and administrative expenses on our consolidated statements of operations. As of March 31, 2023 and December 31, 2022, $0.7 million and $0.7 million of reimbursements of out-of-pocket costs due to our Manager are included in other liabilities on our consolidated balance sheets.
As of March 31, 2023 and December 31, 2022, we had a loan with an unpaid principal balance of $104.6 million and $97.8 million, respectively, and a loan commitment of $141.1 million, whereby the borrower is an affiliate of a shareholder of our common stock who owns approximately 10.9% of our common stock outstanding as of March 31, 2023 .
Note 12. Stock-Based Compensation
Incentive Award Plan
We are externally managed and do not currently have any employees. On March 30, 2016, we adopted the 2016 Incentive Award Plan (the “Plan”) to promote the success and enhance the value of the Company by linking the individual interests of employees of the
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Manager and its affiliates to those of our stockholders. As of March 31, 2023, the maximum remaining number of shares that may be issued under the Plan is equal to 5,025,084 shares.
On March 30, 2023, the Board granted an aggregate of 1,100,000 time-based RSUs to employees of the Manager or its affiliates, which vest in three equal installments on each of the first, second and third anniversaries of April 1, 2023, subject to the terms of the applicable award agreement. Each RSU was granted with the right to receive dividend equivalents. The fair value of the 1,100,000 RSUs was $11.30 per share based on the closing price of our common stock on the date of grant.
On June 14, 2022, the Board granted an aggregate of 2,130,000 time-based RSUs to employees of the Manager or its affiliates, which vest in three equal installments on each of the first, second and third anniversaries of July 1, 2022, subject to the terms of the applicable award agreement. Each RSU was granted with the right to receive dividend equivalents. The fair value of the 2,130,000 RSUs was $18.72 per share based on the closing price of our common stock on the date of grant. During the three months ended March 31, 2023, 12,500 RSUs were forfeited, resulting in a $61,000 reversal of previously recognized stock-based compensation expense which is included in stock-based compensation expense on our consolidated statement of operations.
For the three months ended March 31, 2023 and 2022, we recognized $3.4 million and $0, respectively, of stock-based compensation expense related to the RSUs which is considered a non-cash expense.
Deferred Compensation Plan
On May 24, 2022, we adopted the Deferred Compensation Plan to provide our directors and certain executives with an opportunity to defer payment of their stock-based compensation or RSUs and director cash fees, if applicable, pursuant to the terms of the Deferred Compensation Plan.
Under our Deferred Compensation Plan, certain of our Board members elected to receive the annual fees and/or time-based RSUs to which they are entitled under our Non-Employee Director Compensation Program in the form of deferred RSUs. Accordingly, during three months ended March 31, 2023 and 2022, we issued 2,880 and 0, respectively, of deferred RSUs in lieu of cash fees to such directors, and recognized a related expense of approximately $43,000, which is included in general and administrative expenses on our consolidated statements of operations.
Non-Employee Director Compensation Program
The Board awards time-based RSUs to eligible non-employee Board members on an annual basis as part of such Board members’ annual compensation in accordance with the Non-Employee Director Compensation Program. The time-based awards are generally issued in the second quarter on the date of the annual meeting of our stockholders, in conjunction with the director’s election to the Board, and the awards vest on the earlier of (x) the one-year anniversary of the grant date and (y) the date of the next annual meeting of our stockholders following the grant date, subject to the applicable participants' continued service through such vesting date.
In June 2022, the eligible non-employee members of the Board were automatically granted an aggregate of 29,280 time-based RSUs under the Plan. Each RSU was granted with the right to receive dividend equivalents. Additionally, certain directors elected to defer their RSUs pursuant to the terms of the Deferred Compensation Plan. Such deferred awards will become payable on the earliest to occur of the participant’s separation from service or a change in control. The fair value of the 29,280 RSUs was determined to be $20.49 per share on the grant date based on the closing price of our common stock on such date.
Stock-based compensation expense is recognized in earnings on a straight-line basis over the applicable award’s vesting period. Forfeitures of stock-based compensation awards are recognized as they occur. As of March 31, 2023, total unrecognized compensation expense was $41.8 million based on the grant date fair value of RSUs granted. This expense is expected to be recognized over a remaining period of 2.4 years from March 31, 2023.
The following table details the time-based RSU activity during the three months ended March 31, 2023:
Time-based Restricted Stock Units
Performance-based Restricted Stock Units
Number of Restricted Shares
Weighted-Average Grant Date Fair Value Per Share
Unvested, December 31, 2022
2,159,280
18.74
Granted
1,100,000
11.30
Forfeited
(12,500
18.72
Unvested, March 31, 2023
3,246,780
16.22
For the three months ended March 31, 2022, we had no stock-based compensation expense and no unvested RSUs.
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Note 13. Income Taxes
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with our taxable year ended December 31, 2015 and expect to continue to operate so as to qualify as a REIT. As a result, we will generally not be subject to federal and state income tax on that portion of our income that we distribute to stockholders if we distribute at least 90% of our taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains and income earned by our taxable REIT subsidiary (“TRS”), and comply with certain other requirements to qualify as a REIT. Since Commencement of Operations, we have been in compliance with all REIT requirements and we plan to continue to operate so that we meet the requirements for taxation as a REIT. Therefore, other than amounts relating to our TRS, as described below, we have not provided for current income tax expense related to our REIT taxable income for the three months ended March 31, 2023 and 2022, respectively. Additionally, no provision has been made for federal or state income taxes in the accompanying financial statements, as we believe we have met the prescribed requisite requirements.
Our real estate owned is held in a TRS. A TRS is a corporation that is owned directly or indirectly by a REIT and has jointly elected with the REIT to be treated as a TRS for tax purposes. For the three months ended March 31, 2023 and 2022, we did not record a current or deferred tax benefit or expense related to our TRS.
As of March 31, 2023 and December 31, 2022, we did not have any deferred tax assets or deferred tax liabilities due to a full valuation allowance that was established against our deferred tax assets. The deferred tax asset and valuation allowance at March 31, 2023 were $20.0 million and $20.0 million, respectively. The deferred tax asset and valuation allowance at December 31, 2022 were $16.6 million and $16.6 million, respectively.
We recognize tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions, if applicable, are included as a component of the provision for income taxes in our consolidated statements of income. As of and for the three months ended March 31, 2023 and 2022, we have not recorded any amounts for uncertain tax positions.
Our tax returns are subject to audit by taxing authorities. Tax years 2019 and onward remain open to examination by major taxing jurisdictions in which we are subject to taxes.
Note 14. Commitments and Contingencies
We hold a 51% interest in CMTG/TT as a result of committing to invest $124.9 million in CMTG/TT. Distributions representing repayment proceeds from CMTG/TT’s loans may be recalled by CMTG/TT, if the repayment occurred at least six months prior to the loan’s initial maturity date. As of March 31, 2023 and December 31, 2022, we contributed $163.1 million and $163.1 million, respectively, to CMTG/TT and have received return of capital distributions of $123.3 million, of which $111.1 million were recallable. As of March 31, 2023 and December 31, 2022, CMTG’s remaining capital commitment to CMTG/TT was $72.9 million and $72.9 million, respectively.
As of March 31, 2023 and December 31, 2022, we had aggregate unfunded loan commitments of $1.7 billion and $1.9 billion respectively, which amounts will generally be funded to finance capital or lease related expenditures by our borrowers, subject to them achieving certain conditions precedent to such funding. These future commitments will expire over the remaining term of the loans, none of which exceed five years.
Our contractual payments due under all financings were as follows as of March 31, 2023 ($ in thousands):
Year
2023(1)(2)
397,707
2024
792,806
2025
1,468,389
2026
1,996,900
2027
1,285,313
In the normal course of business, we may enter into contracts that contain a variety of representations and provide for general indemnifications. Our maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against us that have not yet occurred. However, based on experience, we expect the risk of loss to be remote.
Note 15. Subsequent Events
We have evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that no additional disclosure is necessary.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q. References herein to “Claros Mortgage Trust,” “Company”, “we”, “us” or “our” refer to Claros Mortgage Trust, Inc. and its subsidiaries unless the context specifically requires otherwise. References to "Sponsor" refer to Mack Real Estate Credit Strategies, L.P. ("MRECS"), the CRE lending and debt investment business affiliated with Mack Real Estate Group, LLC ("MREG"). Although MRECS and MREG are distinct legal entities, for convenience, references to our "Sponsor" are deemed to include references to MRECS and MREG, individually or collectively, as appropriate for the context and unless otherwise indicated.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make forward-looking statements herein and will make forward-looking statements in future filings with the SEC, press releases or other written or oral communications within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For these statements, we claim the protections of the safe harbor for forward-looking statements contained in such Sections. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions, it intends to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: the macro- and micro-economic impact of the COVID-19 pandemic and secondary effects thereof on our financial condition, results of operations, liquidity and capital resources; market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy; the demand for commercial real estate loans; our business and investment strategy; our operating results; actions and initiatives of the U.S. government and governments outside of the United States, changes to government policies and the execution and impact of these actions, initiatives and policies; the state of the economy generally or in specific geographic regions; economic trends and economic recoveries; our ability to obtain and maintain financing arrangements, including secured debt arrangements and securitizations; the timing and amount of expected future fundings of unfunded commitments; the availability of debt financing from traditional lenders; the volume of short-term loan extensions; the demand for new capital to replace maturing loans; expected leverage; general volatility of the securities markets in which we participate; changes in the value of our assets; the scope of our target assets; interest rate mismatches between our target assets and any borrowings used to fund such assets; changes in interest rates and the market value of our target assets; changes in prepayment rates on our target assets; effects of hedging instruments on our target assets; rates of default or decreased recovery rates on our target assets; the degree to which hedging strategies may or may not protect us from interest rate volatility; impact of and changes in governmental regulations, tax law and rates, accounting, legal or regulatory issues or guidance and similar matters; our continued maintenance of our qualification as a REIT for U.S. federal income tax purposes; our continued exclusion from registration under the Investment Company Act of 1940, as amended (the "1940 Act"); the availability of opportunities to acquire commercial mortgage-related, real estate-related and other securities; the availability of qualified personnel; estimates relating to our ability to make distributions to our stockholders in the future; our present and potential future competition; and unexpected costs or unexpected liabilities, including those related to litigation.
The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. See "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q and our Annual Report. These and other risks, uncertainties, and factors, including those described in the annual, quarterly and current reports that we file with the SEC, could cause our actual results to differ materially from those included in any forward-looking statements we make. All forward-looking statements speak only as of the date they are made. New risks and uncertainties arise over time and it is not possible to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Introduction
We are a CRE finance company focused primarily on originating loans on transitional CRE assets located in major U.S. markets, including mortgage loans secured by a first priority or subordinate mortgage on transitional CRE assets, and subordinate loans including mezzanine loans secured by a pledge of equity ownership interests in the direct or indirect property owner rather than directly in the underlying commercial properties. These loans are subordinate to a mortgage loan but senior to the property owner’s equity ownership interests. Transitional CRE assets are properties that require repositioning, renovation, rehabilitation, leasing, development or redevelopment or other value-added elements in order to maximize value. We believe our Sponsor’s real estate development, ownership and operations experience and infrastructure differentiates us in lending on these transitional CRE assets. Our objective is to be a premier
provider of debt capital for transitional CRE assets and, in doing so, to generate attractive risk-adjusted returns for our stockholders over time, primarily through dividends. We strive to create a diversified investment portfolio of CRE loans that we generally intend to hold to maturity. We focus primarily on originating loans ranging from $50 million to $300 million on transitional CRE assets located in major markets with attractive fundamental characteristics supported by macroeconomic tailwinds.
We were organized as a Maryland corporation on April 29, 2015 and commenced operations on August 25, 2015, and are traded on the New York Stock Exchange, or NYSE, under the symbol “CMTG”. We have elected and believe we have qualified to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2015. We are externally managed and advised by our Manager, an investment adviser registered with the SEC pursuant to the Investment Advisers Act of 1940, as amended (the "Advisers Act"). We operate our business in a manner that permits us to maintain our exclusion from registration under the Investment Company Act of 1940, as amended (the "1940 Act").
I. Key Financial Measures and Indicators
As a CRE finance company, we believe the key financial measures and indicators for our business are net income per share, dividends declared per share, Distributable Earnings per share, book value per share, adjusted book value per share, Net Debt-to-Equity Ratio and Total Leverage Ratio. During the three months ended March 31, 2023, we had net income per share of $0.26, dividends declared per share of $0.37, and Distributable Earnings per share of $0.29. As of March 31, 2023, our book value per share was $17.26, our adjusted book value per share was $17.96, our Net-Debt-to-Equity Ratio was 2.2x, and our Total Leverage Ratio was 2.6x. We use Net Debt-to-Equity Ratio and Total Leverage Ratio, financial measures which are not prepared in accordance with GAAP, to evaluate our financial leverage, which in the case of our Total Leverage Ratio, makes certain adjustments that we believe provide a more conservative measure of our financial condition.
Net Income Per Share and Dividends Declared Per Share
The following table sets forth the calculation of basic and diluted net income (loss) per share and dividends declared per share ($ in thousands, except share and per share data):
Net income (loss) attributable to common stock
(22,653
Weighted average shares of common stock outstanding, basic and diluted
138,457,076
Basic and diluted net income (loss) per share of common stock
(0.17
Dividends declared per share of common stock
Distributable Earnings
Distributable Earnings is a non-GAAP measure used to evaluate our performance excluding the effects of certain transactions, non-cash items and GAAP adjustments, as determined by our Manager, that we believe are not necessarily indicative of our current performance and operations. Distributable Earnings is a non-GAAP measure, which we define as net income in accordance with GAAP, excluding (i) non-cash stock-based compensation expense, (ii) real estate depreciation and amortization, (iii) any unrealized gains or losses from mark-to-market valuation changes (other than permanent impairments) that are included in net income for the applicable period, (iv) one-time events pursuant to changes in GAAP and (v) certain non-cash items, which in the judgment of our Manager, should not be included in Distributable Earnings. Pursuant to the Management Agreement, we use Core Earnings, which is substantially the same as Distributable Earnings excluding incentive fees, to determine the incentive fees we pay our Manager. Distributable Earnings is substantially the same as Core Earnings, as defined in the Management Agreement, for the periods presented.
Distributable Earnings, and other similar measures, have historically been a useful indicator of a mortgage REITs’ ability to cover its dividends, and to mortgage REITs themselves in determining the amount of any dividends. Distributable Earnings is a key factor, among others, considered by the Board in setting the dividend and as such we believe Distributable Earnings is useful to investors. Accordingly, we believe providing Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to our stockholders in assessing the overall performance of our business.
We believe that Distributable Earnings provides meaningful information to consider in addition to our net income and cash flows from operating activities determined in accordance with GAAP. We believe Distributable Earnings helps us to evaluate our performance excluding the effects of certain transactions, non-cash items and GAAP adjustments, as determined by our Manager, that we believe are not necessarily indicative of our current performance and operations. Distributable Earnings does not represent net income or cash flows from operating activities as determined in accordance with GAAP and should not be considered as an alternative to GAAP net income,
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an indication of our cash flows from operating activities, a measure of our liquidity or an indication of funds available for our cash needs. In addition, our methodology for calculating Distributable Earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures and, accordingly, our reported Distributable Earnings may not be comparable to the Distributable Earnings reported by other companies.
While Distributable Earnings excludes the impact of our unrealized provision for or reversal of current expected credit loss reserves, loan losses are charged off and recognized through Distributable Earnings when deemed non-recoverable. Non-recoverability is determined (i) upon the resolution of a loan (i.e., when the loan is repaid, fully or partially, or in the case of foreclosure, when the underlying asset is sold), or (ii) with respect to any amount due under any loan, when such amount is determined to be non-collectible. During the three months ended March 31, 2023, we recorded a $3.2 million reversal in the CECL reserve, which has been excluded from Distributable Earnings. During the three months ended December 31, 2022, we recorded a $71.4 million provision for CECL reserve, which has been excluded from Distributable Earnings.
In determining Distributable Earnings per share, the dilutive effect of unvested RSUs is considered. The weighted-average diluted shares outstanding used for Distributable Earnings has been adjusted from weighted-average diluted shares under GAAP to include unvested RSUs.
The table below summarizes the reconciliation from weighted-average diluted shares under GAAP to the weighted-average diluted shares used for Distributable Earnings:
Weighted-Averages
Diluted Shares - GAAP
Unvested RSUs
2,183,169
Diluted Shares - Distributable Earnings
140,568,979
140,616,356
The following table provides a reconciliation of net income (loss) attributable to common stock to Distributable Earnings ($ in thousands, except share and per share data):
Net income (loss) attributable to common stock:
Adjustments:
3,427
71,377
Depreciation expense
2,039
Unrealized loss (gain) on interest rate cap
(429
Distributable Earnings prior to principal charge-offs
40,267
53,761
Principal charge-offs
(27
53,734
Weighted average diluted shares - Distributable Earnings
Diluted Distributable Earnings per share prior to principal charge-offs
0.29
0.38
Diluted Distributable Earnings per share
31
Book Value Per Share
We believe that presenting book value per share adjusted for the general current expected credit loss reserve and accumulated depreciation is useful for investors as it enhances the comparability across the industry. We believe that our investors and lenders consider book value excluding these items as an important metric related to our overall capitalization.
The following table sets forth the calculation of our book value and our adjusted book value per share ($ in thousands, except share and per share data):
Number of shares of common stock outstanding and RSUs
141,632,654
140,542,274
Book Value per share(1)
17.26
17.48
Add back: accumulated depreciation on real estate owned
0.12
0.11
Add back: general CECL reserve
0.58
0.61
Adjusted Book Value per share
17.96
18.20
II. Our Portfolio
The below table summarizes our loan portfolio as of March 31, 2023 ($ in thousands):
Weighted Average(3)
Yield to Maturity(4)
Term toFullyExtendedMaturity (in years) (5)
LTV(6)
Senior and subordinate loans
3.1
68.9
Portfolio Activity and Overview
The following table summarizes changes in unpaid principal balance within our loan portfolio for the three months ended March 31, 2023 ($ in thousands):
32
Unpaid principal balance, beginning of period
Initial funding of loans
Advances on loans
226,492
Loan repayments
(210,787
Total net fundings/(payoffs)
116,764
Unpaid principal balance, end of period
The following table details our loan investments individually based on unpaid principal balances as of March 31, 2023 ($ in thousands):
Loan Number
Loan type
Origination Date
Carrying Value(2)
Fully Extended Maturity(3)
Construction(4)
Senior
12/16/2021
405,000
400,765
398,377
6/16/2027
11/1/2019
390,000
389,065
11/1/2026
7/12/2018
280,000
7/26/2021
225,000
224,084
7/26/2026
GA
10/18/2019
253,631
215,264
Y
8/17/2022
235,000
212,310
210,560
8/17/2027
6/30/2022
227,000
212,229
210,171
6/30/2029
12/27/2018
210,000
2/1/2025
2/15/2022
262,500
205,452
203,429
2/15/2027
10/4/2019
223,062
197,116
196,854
10/1/2025
DC
9/7/2018
192,600
192,428
1/14/2022
170,000
168,989
1/14/2027
CO
9/26/2019
258,400
167,305
166,217
9/26/2026
4/14/2022
193,400
166,913
165,597
4/14/2027
MI
9/20/2019
160,000
158,135
FL
9/8/2022
152,793
151,503
9/8/2027
AZ
2/28/2019
150,000
149,656
2/28/2024
CT
1/9/2018
1/9/2024
12/30/2021
147,500
147,286
12/30/2025
PA
8/8/2019
154,979
8/8/2026
4/26/2022
151,698
133,630
132,340
4/26/2027
TX
12/10/2021
130,000
129,371
12/10/2026
Subordinate
12/9/2021
125,000
124,771
1/1/2027
IL
9/24/2021
127,535
122,535
121,787
9/24/2028
9/30/2019
122,500
122,400
2/9/2027
4/29/2019
120,000
119,510
119,411
4/29/2024
3/1/2022
122,000
118,600
117,844
2/28/2027
8/8/2022
115,000
114,291
8/8/2027
7/20/2021
113,500
113,367
7/20/2026
6/17/2022
127,250
112,841
111,574
6/17/2027
2/13/2020
124,810
112,442
2/13/2025
4/1/2020
141,084
104,628
103,758
4/1/2026
TN
6/7/2018
104,250
105,343
1/15/2022
34
12/15/2021
103,000
102,473
12/15/2026
35
3/21/2023
4/1/2028
36
8/2/2021
100,000
97,005
96,534
8/2/2026
37
1/27/2022
100,800
96,159
95,551
1/27/2027
NV
38
3/31/2020
87,750
2/9/2025
39
12/21/2018
87,741
87,947
6/21/2022
3/22/2021
148,303
79,732
78,912
3/22/2026
MA
8/1/2022
115,250
78,500
7/30/2026
7/10/2018
76,370
74,720
7/10/2025
43
4/5/2019
75,500
4/5/2024
44
7/27/2022
76,000
75,185
74,767
7/27/2027
UT
45
8/27/2021
84,810
70,137
69,613
8/27/2026
46
11/2/2021
77,115
67,211
66,653
11/2/2026
7/31/2019
10/31/2021
48
12/22/2021
76,350
65,843
65,334
12/22/2026
49
6/3/2021
79,600
64,821
64,333
6/3/2026
1/10/2022
130,461
61,141
59,863
1/9/2027
8/29/2018
60,000
59,938
8/31/2023
1/19/2022
73,677
56,004
55,466
1/19/2027
53
11/4/2022
140,000
51,996
50,642
11/9/2026
3/15/2022
53,300
49,844
49,504
3/15/2027
55
2/2/2022
90,000
42,253
WA
56
2/4/2022
44,768
38,291
37,978
2/4/2027
57
11/24/2021
60,255
36,235
58
48,500
32,374
59
32,002
31,792
60
141,791
30,155
28,808
12/30/2026
Mixed-use
4/18/2019
30,000
29,988
5/1/2023
62
7/2/2021
7/2/2024
5/13/2022
202,500
26,994
24,983
5/13/2027
64
1/31/2022
34,641
26,571
26,278
1/31/2027
2/17/2022
28,479
24,525
24,348
2/17/2027
66
8/2/2019
20,313
20,500
2/2/2024
67
10/13/2022
106,500
17,304
68
1/4/2022
32,795
5,731
5,413
1/4/2027
69
2/25/2022
53,984
4,428
3,890
2/25/2027
70
4/19/2022
23,378
4,168
3,937
4/19/2027
7/1/2019
12/30/2020
2/18/2022
32,083
2,764
2,445
2/18/2027
24,245
1,413
1,171
74
8/2/2018
7/9/2023
75
12/21/2022
112,100
(1,121
9/2/2022
176,257
Grand Total/Weighted Average
30.0%
3.2
Real Estate Owned, Net
On February 8, 2021, we acquired legal title to a portfolio of hotel properties located in New York, NY through a foreclosure. Prior to February 8, 2021, the hotel portfolio represented the collateral for the $103.9 million mezzanine loan that we held, which was in default as a result of the borrower failing to pay debt service. The hotel portfolio appears as real estate owned, net on our consolidated balance sheets and, as of March 31, 2023, was encumbered by a $290.0 million securitized senior mortgage, which is included as a liability on our consolidated balance sheets. Refer to Note 5 to our consolidated financial statements for additional details.
Asset Management
Our Manager proactively manages the loans in our portfolio from closing to final repayment and our Sponsor has dedicated asset management employees to perform asset management services. Following the closing of an investment, the asset management team rigorously monitors the loan, with an emphasis on ongoing financial, legal, market condition and quantitative analyses. Through the final repayment of a loan, the asset management team maintains regular contact with borrowers, servicers and local market experts monitoring performance of the collateral, anticipating borrower, property and market issues, and enforcing our rights and remedies when appropriate.
From time to time, some of our borrowers may experience delays in the execution of their business plans. As a transitional lender, we work with our borrowers to execute loan modifications which could include additional equity contributions from borrowers,
repurposing of reserves, temporary deferrals of interest or principal, or partial deferral of coupon interest as payment-in-kind interest. We have completed a number of loan modifications to date, and we may continue to make additional modifications depending on the business plans, financial condition, liquidity and results of operations of our borrowers.
Our Manager reviews our loan portfolio at least quarterly, undertakes an assessment of the performance of each loan, and assigns it a risk rating between “1” and “5,” from least risk to greatest risk, respectively. The weighted average risk rating of our total loan portfolio was 3.2 at March 31, 2023.
During the three months ended December 31, 2022, we recorded a specific CECL reserve of $18.3 million in connection with a senior loan with an unpaid principal balance of $138.8 million, a carrying value prior to any specific CECL reserve of $138.3 million and an initial maturity date of August 8, 2024. The loan, which is comprised of a portfolio of uncrossed loans, is collateralized by a portfolio of multifamily properties located in San Francisco, CA. As of March 31, 2023 and December 31, 2022, this loan is on non-accrual status.
Fair market values used to determine specific CECL reserves are calculated using a discounted cash flow model, a sales comparison approach, or a market capitalization approach. Estimates of fair market values include assumptions of property specific cash flows over estimated holding periods, discount rates approximating 6.0%, and market capitalization rates ranging from 4.5% to 6.0%. These assumptions are based upon the nature of the properties, recent sales and lease comparables, and anticipated real estate and capital market conditions.
Portfolio Financing
Our financing arrangements include repurchase agreements, a term participation facility, asset-specific financing structures, mortgages on real estate owned, and Secured Term Loan borrowings.
The following table summarizes our loan portfolio financing ($ in thousands):
Repurchase agreements and term participation facility
Repurchase agreements - Side Car
Secured term loan
Refer to Note 6 to our consolidated financial statements for additional details on our financings.
We finance certain of our loans using repurchase agreements and a term participation facility. As of March 31, 2023, aggregate borrowings outstanding under our repurchase agreements and term participation facility totaled $4.5 billion, with a weighted average coupon of one-month LIBOR or one-month term SOFR plus 2.67% per annum. All weighted averages are based on unpaid principal balance. As of March 31, 2023, outstanding borrowings under these facilities had a weighted average term to fully extended maturity (assuming we exercise all extension options and our counterparty agrees to such extension options) of 3.2 years.
Each repurchase agreement contains “margin maintenance” provisions, which are designed to allow the counterparty to require the delivery of cash or other assets to de-lever assets that are determined to have experienced a diminution in value. Since inception through March 31, 2023, we have not received any margin calls under any of our repurchase agreements. Each repurchase agreement lender has the benefit of cross-collateralization across all of the loans in its facility.
Our term participation facility lender also has the benefit of cross-collateralization across all of the loans in its facility. We present the term participation facility as a liability on our consolidated balance sheets. As of March 31, 2023, five of our loans were financed under the term participation facility.
We finance certain of our loans via the sale of a participation in such loans, and we present the loan participations sold as liabilities on our consolidated balance sheet when such arrangements do not qualify as sales under GAAP. In instances where we have multiple loan participations with the same lender, the financings are generally not cross-collateralized. Each of our loan participations sold is generally term-matched to its corresponding loan. As of March 31, 2023, three of our loans were financed with loan participations sold.
We finance certain of our loans via secured financings on a term-matched basis that is generally non-recourse. We refer to such financings as notes payable and they are collateralized by the related loans receivable. As of March 31, 2023, six of our loans were financed with notes payable.
We have a secured term loan of $753.2 million which we originally entered into on August 9, 2019. Our secured term loan is presented net of any original issue discount and transaction expenses which are deferred and recognized as a component of interest expense over the life of the loan using the effective interest method. As of March 31, 2023, our secured term loan has an unpaid principal balance of $753.2 million and a carrying value of $736.2 million.
Debt Related to Real Estate Owned
On February 8, 2021 we assumed a $300.0 million securitized senior mortgage in connection with a Uniform Commercial Code foreclosure on a portfolio of seven limited service hotels located in New York, New York. The securitized senior mortgage is non-recourse to us. Our debt related to real estate owned as of March 31, 2023 has an unpaid principal balance of $290.0 million, a carrying value of $289.5 million and a stated rate of one-month LIBOR plus 2.78%, subject to a one-month LIBOR floor of 0.75%. See Derivatives below for further detail of the interest rate cap related to this financing.
Derivatives
As part of the agreement to amend the terms of our debt related to real estate owned in June 2021, we acquired an interest rate cap with a notional amount of $290.0 million, strike rate of 3.00%, and a maturity date of February 15, 2024 for $275,000. The fair value of the interest rate cap is $4.6 million at March 31, 2023.
The interest rate cap effectively limits the maximum interest rate of our debt related to real estate owned to 5.78%. Changes in the fair value of our interest rate cap are recorded as an unrealized gain or loss on interest rate cap on our consolidated statements of operations and the fair value is recorded in other assets on our consolidated balance sheets. Proceeds received from our counterparty related to the interest rate cap are recorded as proceeds from interest rate cap on our consolidated statements of operations. During the three months ended March 31, 2023, we recognized $1.2 million as proceeds from interest rate cap.
On June 29, 2022, we entered into a $150.0 million, full recourse credit facility. The facility generally provides interim financing for eligible loans for up to 180 days at an initial advance rate of 75%, which begins to decline after the 90th day. The facility matures on June 29, 2025 and earns interest at a rate of one-month term SOFR, plus a 0.10% credit spread adjustment, plus a spread of 2.25%. With the consent of our lenders, and subject to certain conditions, the commitment of the facility may be increased up to $500.0 million. As of March 31, 2023, the outstanding balance of the facility is $0.
Non-Consolidated Senior Interests Sold and Non-Consolidated Senior Interests Held by Third Parties
In certain instances, we use structural leverage through the non-recourse syndication of a match-term senior loan interest to a third party which qualifies for sale accounting under GAAP, or through the acquisition of a subordinate loan for which a non-recourse senior interest is retained by a third party. In such instances, the senior loan is not included on our consolidated balance sheet.
The following table summarizes our non-consolidated senior interests and related retained subordinate interests as of March 31, 2023 ($ in thousands):
Non-Consolidated Senior Interests
LoanCount
LoanCommitment
UnpaidPrincipalBalance
Weighted Average Spread(1)(2)
Term toFullyExtendedMaturity(in years)(3)
Floating rate non-consolidated senior loans
57,300
55,963
+ 4.35%
1.3
Retained floating rate subordinate loans
Fixed rate non-consolidated senior loans
861,073
859,660
3.47%
3.6
Retained fixed rate subordinate loans
8.49%
3.7
Floating and Fixed Rate Portfolio
Our business model seeks to minimize our exposure to changing interest rates by originating floating rate loans and financing those floating rate loans with floating rate liabilities. Further, we seek to match the benchmark indices, typically one-month LIBOR or one-month term SOFR, in the floating rate loans we originate and the related floating rate financings. As of March 31, 2023, 98.0% of our loans based on unpaid principal balance were floating rate and the majority of our floating rate loans were financed with liabilities that require interest payments based on floating rates also determined by reference to one-month LIBOR or one-month term SOFR plus a spread, which resulted in approximately $1.6 billion of net floating rate exposure.
The following table details our net floating rate exposure as of March 31, 2023 ($ in thousands):
Net FloatingRate Exposure(1)
Floating rate assets
Floating rate liabilities
(5,921,115
Net floating rate exposure
1,584,434
LIBOR has been the subject of national and international regulatory guidance and proposals for reform. On March 5, 2021, the Financial Conduct Authority of the United Kingdom, or the FCA, which regulates LIBOR’s administrator, ICE Benchmark Administration Limited, or IBA, announced that all LIBOR tenors relevant to our assets and liabilities will cease to be published or will no longer be representative after June 30, 2023 (and that all other LIBOR tenors will cease to be published or will no longer be representative either after December 31, 2021, or after June 30, 2023). The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has identified the Secured Overnight Financing Rate, or SOFR, a new index calculated using short-term repurchase agreements backed by Treasury securities, as its preferred alternative rate for USD LIBOR.
Our agreements generally allow for a new interest rate index to be used if LIBOR is no longer available. We are currently working with our borrowers and lenders to transition our loans and financing arrangements to be indexed to one-month SOFR.
We have an interest rate cap with a notional amount of $290.0 million and a maturity date of February 15, 2024 on our debt related to real estate owned. The interest rate cap effectively limits the maximum interest rate of our debt related to real estate owned to 5.78%. We have not employed other interest rate derivatives (interest rate swaps, caps, collars or floors) to hedge our asset or liability portfolio, but we may do so in the future.
Refer to “Quantitative and Qualitative Disclosures About Market Risk—LIBOR Transition” below for additional information.
Results of Operations – Three Months Ended March 31, 2023 and December 31, 2022
As previously disclosed, beginning with our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, and for all subsequent reporting periods, we have elected to present results of operations by comparing to the immediately preceding period, as well as the same year to date period in the prior year. Given the dynamic nature of our business and the sensitivity to the real estate and capital markets, we believe providing analysis of results of operations by comparing to the immediately preceding period is more meaningful to our stockholders in assessing the overall performance of our current business.
Operating Results
The following table sets forth information regarding our consolidated results of operations for the three months ended March 31, 2023, and December 31, 2022 ($ in thousands, except per share data):
$ Change
% Change
154,460
9,706
92,501
13,526
61,959
(3,820
-6
21,657
(10,694
-49
83,616
(14,514
-17
-2
4,774
149
(61
12,301
(2,301
-19
4,964
480
37,372
(367
-1
495
688
139
Unrealized (loss) gain on interest rate cap
429
(1,833
-427
1,556
(71,377
74,616
105
59,331
262
Net income (loss) per share of common stock:
0.43
253
Comparison of the three months ended March 31, 2023 and December 31, 2022
Revenue decreased $14.5 million during the three months ended March 31, 2023, compared to the three months ended December 31, 2022. The decrease is primarily due to a decrease in revenue from real estate owned of $10.7 million due to seasonally lower occupancy and revenue per available room ("RevPAR") levels and a decrease in net interest income of $3.8 million, which was driven by an increase in interest expense of $13.5 million, as a result of increased borrowing levels and reference rate increases, offset in part by an increase in interest income of $9.7 million as a result of an increased loans receivable balance and reference rate increases, partially offset by an increase in loans on non-accrual status over the three months ended March 31, 2023.
Expenses are primarily comprised of base management fees payable to our Manager, incentive fees payable to our Manager, general and administrative expenses, stock-based compensation expense, operating expenses from real estate owned, interest expense from debt related to real estate owned, and depreciation on real estate owned. Expenses decreased by $0.4 million during the three months ended March 31, 2023, as compared to the three months ended December 31, 2022, primarily due to:
Proceeds from interest rate cap were $0.7 million higher during the three months ended March 31, 2023, as compared to the three months ended December 31, 2022, due to increased one-month LIBOR rates, which continued to be in excess of our interest rate cap's 3% strike rate.
During the three months ended March 31, 2023, we recognized a $1.4 million unrealized loss on interest rate cap, compared to a $0.4 million unrealized gain on interest rate cap during the three months ended December 31, 2022. The fair value of the interest rate cap increases as interest rates increase and generally decreases as the interest rate cap approaches maturity.
During the three months ended March 31, 2023 and December 31, 2022, we recognized income from our equity method investment of $1.6 million.
During the three months ended March 31, 2023, we recorded a reversal of current expected credit losses of $3.2 million, primarily attributable to seasoning of our loan portfolio and a reduction in our loan portfolio's total commitments. During the three months ended December 31, 2022, we recorded a provision for current expected credit losses of $71.4 million, primarily attributable to specific CECL reserves of $60.3 million related to two loans, an increase in the size of our loan portfolio, and worsening macroeconomic forecasts.
Results of Operations – Three Months Ended March 31, 2023, and March 31, 2022
The following table sets forth information regarding our consolidated results of operations for three months ended March 31, 2023 and 2022 ($ in thousands, except per share data):
73,472
81
66,447
168
7,025
4,150
11,175
(151
580
2,220
2,860
111
118
10,551
-100
5,341
254
7,307
7,266
0.05
Comparison of the three months ended March 31, 2023 and March 31, 2022
Revenue increased $11.2 million during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The increase is primarily due to an increase in net interest income of $7.0 million for the comparative period, which was driven by an increase in interest income of $73.5 million, primarily as a result of an increased loans receivable balance and reference rate increases, partially offset by an increase in interest expense of $66.5 million as a result of increased borrowing levels and reference rate increases. Further, revenue from real estate owned increased $4.2 million compared to the prior period due to higher occupancy and RevPAR levels versus the first quarter of 2022 during which the Omicron variant of COVID-19 depressed occupancy.
Expenses are primarily comprised of base management fees payable to our Manager, incentive fees payable to our Manager, general and administrative expenses, stock-based compensation expense, operating expenses from real estate owned, interest expense from debt related to real estate owned, and depreciation on real estate owned. Expenses increased by $10.6 million, during the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, primarily due to:
Proceeds from interest rate cap were $1.2 million higher during the comparative period due to one-month LIBOR exceeding our interest rate cap's 3% strike rate during the first quarter of 2023.
Unrealized gain on interest rate cap was $1.4 million lower during the comparative period due to the recognition of a $1.4 million unrealized loss resulting from a decrease in fair value of the interest rate cap during the three months ended March 31, 2023.
During the three months ended March 31, 2023, we recognized income from equity method investment of $1.6 million as a result of us accounting for our investment in CMTG/TT as an equity method investment during the first quarter of 2023. We did not hold any equity method investments during the three months ended March 31, 2022.
During the three months ended March 31, 2023, we recorded a reversal of current expected credit losses of $3.2 million, primarily attributable to seasoning of our loan portfolio and a reduction in our loan portfolio's total commitments. During the three months ended March 31, 2022, we recorded a provision for current expected credit losses of $2.1 million, primarily attributable to an increase in the size of our portfolio.
Liquidity and Capital Resources
Capitalization
We have capitalized our business to date primarily through the issuance of shares of our common stock and borrowings under our secured financings and our Secured Term Loan. As of March 31, 2023, we had 138,376,144 shares of our common stock outstanding, representing $2.4 billion of equity and we also had $5.9 billion of outstanding borrowings under our secured financings, our Secured Term Loan, and our debt related to real estate owned. As of March 31, 2023, our secured financings consisted of six repurchase agreements with capacity of $5.2 billion and an outstanding balance of $4.1 billion, a term participation facility with a capacity of $1.0 billion and an outstanding balance of $340.2 million, nine asset-specific financings with capacity of $714.7 million and an outstanding balance of $445.8 million, and an acquisition facility with a capacity of $150.0 million and no outstanding balance. As of March 31, 2023, our Secured Term Loan had an outstanding balance of $753.2 million and our debt related to real estate owned had an outstanding balance of $290.0 million.
Net Debt-to-Equity Ratio and Total Leverage Ratio
Net Debt-to-Equity Ratio and Total Leverage Ratio are non-GAAP measures that we use to evaluate our financial leverage, which in the case of our Total Leverage Ratio, makes certain adjustments that we believe provide a more conservative measure of our financial condition.
Net Debt-to-Equity Ratio is calculated as the ratio of asset specific debt (repurchase agreements, term participation facility, loan participations sold, net, notes payable, net, and debt related to real estate owned, net) and secured term loan, less cash and cash equivalents to total equity.
Total Leverage Ratio is similar to Net Debt-to-Equity Ratio, however it includes non-consolidated senior interests sold and non-consolidated senior interests held by third parties. Non-consolidated senior interests sold and non-consolidated senior interests held by third parties, as applicable, are secured by the same collateral as our loan and are structurally senior in repayment priority relative to our loan. We believe the inclusion of non-consolidated senior interests sold and non-consolidated senior interests held by third parties provides a meaningful measure of our financial leverage.
The following table presents our Net Debt-to-Equity and Total Leverage Ratios as of March 31, 2023 and December 31, 2022 ($ in thousands):
Asset specific debt
5,182,328
4,927,098
Total debt
5,918,518
5,663,951
Less: cash and cash equivalents
(426,503
(306,456
Net Debt
5,492,015
5,357,495
Net Debt-to-Equity Ratio
2.2x
Non-consolidated senior loans
915,623
968,302
Total Leverage
6,407,638
6,325,797
Total Leverage Ratio
2.6x
Sources of Liquidity
Our primary sources of liquidity include cash and cash equivalents, interest income from our loans, loan repayments, available borrowings under our repurchase agreements, identified borrowing capacity related to our notes payable and loan participations sold, borrowings under our Secured Term Loan, and proceeds from the issuance of our common stock. As circumstances warrant, we and our subsidiaries may also issue common equity, preferred equity and/or debt or incur other debt, including term loans, from time to time on an opportunistic basis, dependent upon market conditions and available pricing. The following table sets forth, as of March 31, 2023 and December 31, 2022, our sources of available liquidity ($ in thousands):
Loan principal payments held by servicer(1)
Approved and undrawn credit capacity
127,808
213,113
Total sources of liquidity
555,223
519,569
We have $593.5 million unpaid principal balance of unencumbered loans at March 31, 2023. Our ability to finance certain of these unencumbered loans is subject to one or more counterparties' willingness to finance such loans.
Liquidity Needs
In addition to our ongoing loan origination and acquisition activity, our primary liquidity needs include future fundings to our borrowers on our unfunded loan commitments, interest and principal payments on outstanding borrowings under our financings, operating expenses and dividend payments to our stockholders necessary to satisfy REIT dividend requirements. Additionally, our financing agreements require us to maintain minimum levels of liquidity in order to satisfy certain financial covenants. We currently maintain, and seek to maintain, cash and liquidity to comply with minimum liquidity requirements under our financings, and we also maintain and seek to maintain excess cash and liquidity to, if necessary, reduce borrowings under our secured financings, including our repurchase agreements.
As of March 31, 2023, we had aggregate unfunded loan commitments of $1.7 billion which is comprised of funding for capital expenditures and construction, leasing costs, and interest and carry costs. The timing of these fundings will vary depending on the progress of capital projects, leasing, and cash flows at the properties securing our loans. Therefore, the exact timing and amounts of such future loan fundings are uncertain and will depend on the current and future performance of the underlying collateral assets. We expect to fund our loan commitments over the remaining maximum term of the related loans, which have a weighted-average future funding period of 3.8 years.
We may from time to time utilize capital to retire, redeem or repurchase our equity or debt securities, term loans or other debt instruments through open market purchases, privately negotiated transactions or otherwise. Such repurchases, redemptions or retirements, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions or other factors.
Contractual Obligations and Commitments
Our contractual obligations and commitments as of March 31, 2023 were as follows ($ in thousands):
Payment Timing
TotalObligations
Less than1 year
1 to3 years
3 to5 years
More than5 years
Unfunded loan commitments(1)
1,659,306
926,914
650,998
81,394
Secured financings, term loan agreement, and debt related to real estate owned - principal and interest(2)
7,210,619
1,234,038
2,522,869
3,453,712
8,869,925
2,160,952
3,173,867
3,535,106
We are required to pay our Manager, in cash, a base management fee and incentive fees (to the extent earned) on a quarterly basis in arrears. The tables above do not include the amounts payable to our Manager under the Management Agreement as they are not fixed and determinable.
As a REIT, we generally must distribute substantially all of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, to stockholders in the form of dividends to comply with certain of the provisions of the Internal Revenue Code. To the extent that we satisfy this distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal income tax on our undistributed REIT taxable income. Our REIT taxable income does not necessarily equal our net income as calculated in accordance with GAAP or our Distributable Earnings as described previously.
Loan Maturities
The following table summarizes the future scheduled repayments of principal based on fully extended maturity dates for the loan portfolio as of March 31, 2023 ($ in thousands):
UnpaidPrincipalBalance(1)
LoanCommitment(1)
370,927
951,186
990,836
1,020,112
1,061,494
2,063,475
2,694,437
2,551,275
3,478,816
Thereafter
435,823
455,594
7,392,798
9,052,104
Cash Flows
The following table provides a breakdown of the net change in our cash and cash equivalents and restricted cash for the three months ended March 31, 2023 and 2022, respectively ($ in thousands):
Net cash flows provided by operating activities
Net cash flows used in investing activities
Net cash flows provided by financing activities
Net increase in cash, cash equivalents, and restricted cash
We experienced a net increase in cash and cash equivalents and restricted cash of $117.9 million during the three months ended March 31, 2023, compared to a net increase of $133.0 million during the three months ended March 31, 2022.
During the three months ended March 31, 2023, we made initial fundings of $101.1 million of new loans and $204.6 million of advances on existing loans and made repayments on financings arrangements of $350.9 million. We received $599.0 million of proceeds from borrowings under our financing arrangements and received $207.8 million from loan repayments.
Income Taxes
We have elected and believe we have qualified to be taxed as a REIT for U.S. federal income tax purposes, commencing with our initial taxable year ended December 31, 2015. We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, to maintain our REIT status. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay (or are treated as paying) out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. Our real estate owned is held in a TRS. Our TRS is not consolidated for U.S. federal income tax purposes and is taxed separately as a corporation. For financial reporting purposes, a provision or benefit for current and deferred taxes is established for the portion of earnings or expense recognized by us with respect to our TRS.
Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Internal Revenue Code, which relate to organizational structure, diversity of stock ownership and certain restrictions with regard to the nature of our assets and the sources of our income. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state and local income tax on our REIT taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four full taxable years. As of March 31, 2023, we were in compliance with all REIT requirements.
Refer to Note 13 to our consolidated financial statements for additional information about our income taxes.
Off-Balance Sheet Arrangements
As of March 31, 2023, we had no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our Manager to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We believe that all of the decisions and estimates are reasonable, based upon the information available to us. We believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Refer to Note 2 to our consolidated financial statements for a description of our significant accounting policies.
The CECL reserve required under ASU 2016-13 “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments (Topic 326)” (“ASU 2016-13”), reflects our current estimate of potential credit losses related to our loan portfolio. Changes to the CECL reserve are recognized through a provision for or reversal of current expected credit loss reserve on our consolidated statements of operations. ASU 2016-13 specifies the reserve should be based on relevant information about past events, including historical loss experience, current portfolio, market conditions and reasonable and supportable macroeconomic forecasts for the duration of each loan.
For our loan portfolio, we perform a quantitative assessment of the impact of CECL using the Weighted Average Remaining Maturity, or WARM, method. The application of the WARM method to estimate a general CECL reserve requires judgment, including the appropriate historical loan loss reference data, the expected timing and amount of future loan fundings and repayments, the current credit quality of our portfolio, and our expectations of performance and market conditions over the relevant time period.
When evaluating the current and future macroeconomic environment, we consider the aforementioned macroeconomic factors. Historical data for each metric is compared to historical commercial real estate loan losses in order to determine the relationship between the two variables. We use projections of each macroeconomic factor, obtained from a third party, to approximate the impact the macroeconomic outlook may have on our loss rate. Selections of these economic forecasts require judgement about future events that, while based on the information available to us as of the balance sheet date, are ultimately unknowable with certainty, and the actual economic conditions could vary significantly from the estimates we made. Following a reasonable and supportable forecast period, we use a straight-line method of reverting to the historical loss rate. Additionally, we assess the obligation to extend credit through our unfunded loan commitments over each loan’s contractual period, adjusted for projected fundings from interest reserves if applicable, which is considered in the estimate of the general CECL reserve. For both the funded and unfunded portions of our loans, we consider our internal risk rating of each loan as the primary credit quality indicator underlying our assessment.
In certain circumstances we may determine that a loan is no longer suited for the WARM method due to its unique risk characteristics, where we have deemed the borrower/sponsor to be experiencing financial difficulty and the repayment of the loan’s principal is collateral-dependent. We may instead elect to employ different methods to estimate loan losses that also conform to ASU 2016-13 and related guidance.
For such loan we would separately measure the specific reserve for each loan by using the fair value of the loan's collateral. If the fair value of the loan's collateral is less than the carrying value of the loan, an asset-specific reserve is created as a component of our overall current expected credit loss reserve. Specific reserves are equal to the excess of a loan’s carrying value to the fair value of the collateral, less estimated costs to sell, if recovery of our investment is expected from the sale of the collateral.
If we have determined that a loan or a portion of a loan is uncollectible, we will write-off such portion of the loan through an adjustment to our current expected credit loss reserve. Significant judgment is required in determining impairment and in estimating the resulting credit loss reserve, and actual losses, if any, could materially differ from those estimates.
We may assume legal title or physical possession of the underlying collateral of a defaulted loan through foreclosure. Foreclosed real estate owned, net is initially recorded at estimated fair value and is presented net of accumulated depreciation and impairment charges, if any, and the assets and liabilities are presented separately when legal title or physical possession is assumed. If the fair value of the foreclosed real estate is lower than the carrying value of the loan, the difference, along with any previously recorded specific CECL reserves, are recorded as a realized loss on foreclosure of real estate owned in the consolidated statement of operations. Conversely, if the fair value of the foreclosed real estate is greater than the carrying value of the loan, the difference, along with any previously recorded specific CECL reserves, are recorded as a realized gain on foreclosure of real estate owned in the consolidated statement of operations.
Acquisition of real estate is accounted for using the acquisition method under Accounting Standards Codification ("ASC") Topic 805, Business Combinations. We recognize and measure identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree, if applicable, based on their relative fair values. If applicable, we recognize and measure intangible assets and expense acquisition-related costs in the periods in which the costs are incurred and the services are received.
Real estate assets that are acquired for investment are assumed at their estimated fair value at acquisition and presented net of accumulated depreciation and impairment charges, if any. Upon acquisition, we allocate the value of acquired real estate assets based on the fair value of the acquired land, building, furniture, fixtures and equipment, and intangible assets, if applicable. Real estate assets are depreciated using the straight-line method over estimated useful lives ranging from 5 to 40 years.
Real estate assets are evaluated for indicators of impairment on a quarterly basis. Factors that we may consider in our impairment analysis include, among others: (1) significant underperformance relative to historical or anticipated operating results; (2) significant negative industry or economic trends; (3) costs necessary to extend the life or improve the real estate asset; (4) significant increase in competition; and (5) ability to hold and dispose of the real estate asset in the ordinary course of business. A real estate asset is considered impaired when the sum of estimated future undiscounted cash flows expected to be generated by the real estate asset over the estimated remaining holding period is less than the carrying amount of such real estate asset. Cash flows include operating cash flows and anticipated capital proceeds generated by the real estate asset. If the sum of such estimated cash flows is less than the carrying amount of the real estate asset, an impairment charge is recorded equal to the excess of the carrying value of the real estate asset over the fair value.
When determining the fair value of a real estate asset, we make certain assumptions including, but not limited to, consideration of projected operating cash flows, comparable selling prices and projected cash flows from the eventual disposition of the real estate asset based upon our estimate of a capitalization rate and discount rate.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Rising interest rates will generally increase our net interest income, while declining interest rates will generally decrease our net interest income.
During 2022, the Federal Reserve began a campaign to combat inflation by increasing interest rates. By the end of 2022, the Federal Reserve had raised interest rates by a total of 4.25%. In 2023, the Federal Reserve raised rates another 0.50% and signaled the potential for further increases in coming quarters to the extent necessary to further combat inflation. Higher interest rates imposed by the Federal Reserve may continue to increase our interest expense and may impact the ability of our borrowers to service their debt and reduce the value of CRE collateral underlying our loans.
The following table illustrates the impact on our interest income and interest expense for the twelve-month period following March 31, 2023, assuming a decrease in one-month LIBOR or SOFR of 50 and 100 basis points and an increase in one-month LIBOR or SOFR of 50 and 100 basis points in the applicable interest rate benchmark (based on one-month LIBOR of 4.86% and one-month term SOFR of 4.80% as of March 31, 2023 ($ in thousands):
Assets (Liabilities)
Decrease
Increase
Subject to Interest Rate Sensitivity
Change in
100 Basis Points
50 Basis Points
(13,113
(6,557
6,557
13,113
Net interest income per share
(0.09
(0.05
0.09
LIBOR Transition
On March 5, 2021, the Financial Conduct Authority of the U.K. (the “FCA”), which regulates LIBOR, announced (the “FCA Announcement”) that all relevant LIBOR tenors will cease to be published or will no longer be representative after June 30, 2023. The FCA Announcement coincides with the March 5, 2021 announcement of LIBOR’s administrator, the ICE Benchmark Administration Limited (the “IBA”), indicating that, as a result of not having access to input data necessary to calculate relevant LIBOR tenors on a representative basis after June 30, 2023, the IBA would have to cease publication of such LIBOR tenors immediately after the last publication on June 30, 2023. Further, on March 15, 2022, the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act, was signed into law in the United States. This legislation establishes a uniform benchmark replacement process for financial contracts maturing after June 30, 2023 that do not contain clearly defined or practicable fallback provisions. The legislation also creates a safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Board of Governors of the Federal Reserve.
The United States Federal Reserve has also advised banks to cease entering into new contracts that use USD LIBOR as a reference rate. The Federal Reserve, in conjunction with the Alternative Reference Rate Committee (the "ARRC"), a committee convened by the Federal Reserve that includes major market participants, has identified the Secured Overnight Financing Rate, or SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR. There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities. If our LIBOR-based borrowings are converted to SOFR, the differences between LIBOR and SOFR could result in higher interest costs for us, which could have a material adverse effect on our operating results.
As of March 31, 2023, 47% of our loans by unpaid principal balance earned a floating rate of interest indexed to one-month LIBOR and 23% of our outstanding floating rate financing arrangements bear interest indexed to one-month LIBOR. All of our LIBOR-based arrangements provide procedures for determining an alternative base rate in the event that LIBOR is discontinued. We are currently working with our borrowers and lenders to transition our loans and financing arrangements, respectively, to be indexed to one-month SOFR.
Credit Risk
Our loans and other investments are also subject to credit risk, including the risk of default. In particular, changes in general economic conditions will affect the creditworthiness of borrowers and/or the value of underlying real estate collateral relating to our investments. By its very nature, our investment strategy emphasizes prudent risk management and capital preservation by primarily
originating senior loans utilizing underwriting techniques resulting in relatively conservative loan-to-value ratio levels to insulate us from loan losses absent a significant diminution in collateral value. In addition, we seek to manage credit risk through performance of extensive due diligence on our collateral, borrower and guarantors, as applicable, that evaluates, among other things, title, environmental and physical condition of collateral, comparable sales and leasing analysis of similar collateral, the quality of and alternative uses for the real estate collateral being underwritten, submarket trends, our borrower’s track record and the reasonableness of the borrower’s projections prior to originating a loan. Subsequent to loan origination, we also manage credit risk through proactive investment monitoring and, whenever possible, limiting our own leverage to partial recourse or non-recourse, match-funding financing. Notwithstanding these efforts, there can be no assurance that we will be able to avoid losses in all circumstances. The performance and value of our loans and investments depend upon the borrower’s ability to improve and operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, our Sponsor’s asset management team monitors the performance of our loan portfolio and our Sponsor’s asset management and origination teams maintain regular contact with borrowers, co-lenders and local market experts to monitor the performance of the underlying loan collateral, anticipate borrower, property and market issues and, to the extent necessary or appropriate, enforce our rights as the lender.
In addition, we are exposed to the risks generally associated with the CRE market, including variances in occupancy rates, capitalization rates, absorption rates and other macroeconomic factors beyond our control. We seek to manage these risks through our underwriting, loan structuring, financing structuring and asset management processes.
In the event that we are forced to foreclose, our broader Sponsor platform includes professionals experienced in CRE development, ownership, property management and asset management which enables us to execute the workout of a troubled loan and protect investors’ capital in a way that we believe many non-traditional lenders cannot.
Capital Markets Risks
We are exposed to risks related to the equity and debt capital markets and our related ability to raise capital through the issuance of our common stock or other debt or equity-related instruments. As a REIT, we are required to distribute a significant portion of our REIT taxable income annually, which constrains our ability to retain and accumulate operating earnings and therefore requires us to utilize debt or equity capital to finance the growth of our business. We seek to mitigate these risks by monitoring the debt and equity capital markets, the maturity profile of our in-place loan portfolio related to secured financings, and future funding requirements on our loan portfolio to inform our decisions on the amount, timing, and terms of capital we raise.
Each of the repurchase agreements contain “margin maintenance” provisions, which are designed to allow the lender to require the delivery of cash or other assets to reduce the financing amount against the loans that have been deemed to have experienced a diminution in value. A substantial deterioration in the commercial real estate capital markets may negatively impact the value of assets financed with lenders that have margin maintenance provisions in their facilities. Certain of our repurchase agreements permit valuation adjustments solely as a result of collateral-specific credit events, while other repurchase agreements contain provisions also allowing our lenders to make margin calls upon the occurrence of adverse changes in the markets or as a result of interest rate or spread fluctuations, subject to minimum thresholds, among other factors. As of March 31, 2023, we have not received any margin calls under any of our repurchase agreements.
During the quarter ended March 31, 2023, there was significant volatility in the banking sector resulting from several regional bank failures. While we neither maintained nor maintain any accounts at these failed banks, substantially all of our cash and cash equivalents currently on deposit with major financial institutions exceed insured limits. Such deposits are redeemable upon demand and are maintained with financial institutions with strong credit profiles and we therefore believe bear minimal risk. Further, we do not and have not had any financing relationships with any of the banks that have recently failed, and thus none of our future fundings are subject to the risk that one of the failed banks will not fund.
Prepayment Risk
Prepayment risk is the risk that principal will be repaid prior to initial maturity, which may require us to identify new investment opportunities to deploy such capital at a similar rate of return in order to avoid an overall reduction in our net interest income. We may structure our loans with spread maintenance, minimum multiples and make-whole provisions to protect against early repayment. Typically, investments are structured with the equivalent of 12 to 24 months’ spread maintenance or a minimum level of income that an investment is contractually obligated to return. In general, an increase in prepayment rates accelerates the accretion of deferred income, including origination fees and exit fees, which increases interest income earned on the asset during the period of repayment. Conversely, if capital that is repaid is not subsequently redeployed into investment opportunities generating a similar return, future periods may experience reduced net interest income.
Repayment / Extension Risk
Loans are expected to be repaid at maturity, unless the borrower repays early or meets contractual conditions to qualify for a maturity extension. However, in the case of a loan maturity extension, we are often entitled to extension fees, principal paydowns and/or spread increases. Our Manager computes the projected weighted average life of our assets based on the initial and fully extended scheduled maturity dates of loans in our portfolio. Higher interest rates imposed by the Federal Reserve may lead to an increase in the number of our borrowers who exercise extension options, which could extend beyond the term of certain secured financing agreements we use to finance our loan investments. This could have a negative impact on our results of operations, and in some situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses.
Counterparty Risk
The nature of our business requires us to hold cash and cash equivalents with various financial institutions, as well as obtain financing from various financial institutions. This exposes us to the risk that these financial institutions may not fulfill their obligations to us under various contractual arrangements. We mitigate this exposure by depositing our cash and cash equivalents and entering into financing agreements with high credit-quality institutions.
Our relationships with our lenders subject us to counterparty risks including the risk that a counterparty is unable to fund undrawn credit capacity, particularly if such counterparty enters bankruptcy. We seek to manage this risk by diversifying our financing sources across counterparties and financing types and generally obtaining financing from high credit quality institutions.
The nature of our loans and other investments also exposes us to the risk that our borrowers are unable to execute their business plans, and as a result do not make required interest and principal payments on scheduled due dates, as well as the impact of our borrowers’ tenants not making scheduled rent payments when contractually due. We seek to manage this risk through a comprehensive credit analysis prior to making an investment and rigorous monitoring of our borrowers’ progress in executing their business plans as well as market conditions that may affect the underlying collateral, through our asset management process. Each loan is structured with various lender protections that are designed to prevent fraudulent behavior or other bad acts by borrowers, as well as require borrowers to adhere to their stated business plans while the loan is outstanding. Such protections may include, without limitation: cash management accounts, “bad boy” carveout guarantees, completion guarantees, guarantor minimum net worth and liquidity requirements, approval rights over major decisions, and performance tests throughout the loan term.
Currency Risk
To date, we have made no loans and hold no assets or liabilities denominated or payable in foreign currencies, although we may do so in the future.
We may in the future hold assets denominated or payable in foreign currencies, which would expose us to foreign currency risk. As a result, a change in foreign currency exchange rates may have a positive or an adverse impact on the valuation of our assets, as well as our income and dividends. Any such changes in foreign currency exchange rates may impact the measurement of such assets or income for the purposes of our REIT tests and may affect the amounts available for payment of dividends to our stockholders.
Although not required, if applicable, we may hedge any currency exposures. However, such currency hedging strategies may not eliminate all of our currency risk due to, among other things, uncertainties in the timing and/or amount of payments received on the related investments and/or unequal, inaccurate or unavailability of hedges to perfectly offset changes in future exchange rates. Additionally, we may be required under certain circumstances to collateralize our currency hedges for the benefit of the hedge counterparty, which could adversely affect our liquidity.
Real Estate Risk
The market values of loans secured directly or indirectly by CRE assets are subject to volatility and may be adversely affected by a number of factors, including, but not limited to, the impacts of the COVID-19 pandemic, national, regional, local and foreign economic conditions (which may be adversely affected by industry slowdowns and other factors); regional or local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; changes to building or similar codes and regulatory requirements (such as rent control); and changes in real property tax rates. In addition, decreases in property values reduce the value of the loan collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses. We seek to manage these risks through our underwriting, loan structuring, financing structuring and asset management processes.
Financing Risk
We finance our business through a variety of means, including the syndication of non-consolidated senior interests, notes payable, borrowings under our repurchase and participation facilities, the syndication of pari passu portions of our loans, the syndication of senior participations in our originated senior loans, and our secured term loan. Over time, as market conditions change, we may use other forms of financing in addition to these methods of financing. Weakness or volatility in the debt capital markets, the CRE and mortgage markets, changes in regulatory requirements, and the economy generally, in particular as a result of the COVID-19 pandemic, and recent rapid increase in interest rates that central banks are using to combat inflation and the resulting market disruptions therefrom could adversely affect one or more of our lenders or potential lenders and could cause one or more of our lenders or potential lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing or otherwise offer unattractive terms for that financing. In addition, we may seek to finance our business through the issuance of our common stock or other equity or equity-related instruments, though there is no assurance that such financing will be available on a timely basis with attractive terms, or at all.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act of 1934) during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
As of March 31, 2023, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2023.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of March 31, 2023, we were not involved in any material legal proceedings. Refer to Note 14 to our consolidated financial statements for information on our commitments and contingencies.
Item 1A. Risk Factors.
For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in the Prospectus. There have been no material changes to our principal risks that we believe are material to our business, results of operations, and financial condition from the risk factors disclosed in our Annual Report file on Form 10-K, which is accessible on the SEC’s website at www.sec.gov.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Item 6. Exhibits.
Exhibit
Number
Description
Articles of Amendment and Restatement of Claros Mortgage Trust, Inc. (incorporated by referenced to Exhibit 3.1 to the Current Report on Form 8-K, dated November 5, 2021, filed by the Company, Commission File No. 001-40993)
Amended and Restated Bylaws of Claros Mortgage Trust, Inc. (incorporated by referenced to Exhibit 3.2 to the Current Report on Form 8-K, dated November 5, 2021, filed by the Company, Commission File No. 001-40993)
10.1*
First Amendment to Amended and Restated Repurchase and Securities Contract Agreement, dated as of May 31, 2022, by and between CMTG GS Finance LLC and Goldman Sachs Bank USA.
10.2*
Second Amendment to Amended and Restated Repurchase and Securities Contract Agreement and First Amendment to Amended and Restated Guarantee Agreement, dated as of January 13, 2023, by and between CMTG GS Finance LLC and Goldman Sachs Bank USA.
10.3*
First Amendment to Guaranty made by Claros Mortgage Trust, Inc. in favor of Barclays Bank PLC, dated as of February 21, 2023.
10.4*
Third Amendment to Amended and Restated Uncommitted Master Repurchase Agreement and First Amendment to Guarantee Agreement, dated as of March 10, 2023, by and between CMTG JP Finance LLC and JPMorgan Chase Bank, National Association.
10.5*
Tenth Amendment to Master Repurchase and Securities Contract Agreement, dated as of January 25, 2022, by and between Morgan Stanley Bank, N.A. and CMTG MS Finance LLC.
10.6*
Eleventh Amendment to Master Repurchase and Securities Contract Agreement, dated as of January 26, 2023, by and between Morgan Stanley Bank, N.A. and CMTG MS Finance LLC.
10.7*
Twelfth Amendment to Master Repurchase and Securities Contract Agreement and First Amendment to Guaranty, dated as of March 16, 2023, by and between Morgan Stanley Bank, N.A. and CMTG MS Finance LLC.
10.8*
First Amendment to Guaranty made by Claros Mortgage Trust, Inc. in favor of Deutsche Bank AG, New York Branch, dated as of August 17, 2022.
10.9*
Second Amendment to Guaranty made by Claros Mortgage Trust, Inc. in favor of Deutsche Bank AG, New York Branch, dated as of March 28, 2023.
10.10*
First Amendment to Loan Guaranty by and among the subsidiary guarantors named therein and JPMorgan Chase Bank, N.A., dated as of March 29, 2023.
10.11*
Amended and Restated Master Purchase Agreement, dated as of August 17, 2022, by and between CMTG DB Finance LLC and Deutsche Bank AG, New York Branch.
31.1*
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
*
Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 2, 2023
By:
/s/ Richard J. Mack
Richard J. Mack
Chief Executive Officer and Chairman
(Principal Executive Officer)
/s/ Jai Agarwal
Jai Agarwal
Chief Financial Officer
(Principal Financial and Accounting Officer)