Claros Mortgage Trust CMTG Earnings Transcript

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Date

Thursday, Feb. 19, 2026 at 10 a.m. ET

Call participants

• Chief Executive Officer and Chairman — Richard Jay Mack
• President, Chief Financial Officer, and Director — John Michael McGillis
• Vice President, Credit Strategies, Mack Real Estate Group — Priyanka Garg
• Vice President, Investor Relations — Anne Wynn

Takeaways

• Total loan resolutions -- $2.5 billion resolved in 2025, exceeding the $2 billion target, including 11 watch list loans totaling $1.3 billion UPB.
• GAAP net loss per share -- $1.56 loss per share for the year was reported.
• Distributable loss per share -- $0.71 loss per share in 2025; distributable earnings before realized gains and losses were $0.02 per share.
• Portfolio size -- Held-for-loan portfolio decreased to $3.7 billion at year-end from $4.3 billion at Sept. 30 and $6.1 billion at prior year-end.
• Asset exposure reduction -- Office exposure decreased from $859 million to $589 million, and land exposure decreased from $489 million to $187 million across 2025.
• Specific loan resolution -- A $150 million Connecticut office loan was resolved at approximately 70% of par with a $46 million principal charge-off and $35 million net liquidity generated.
• Foreclosures -- $88 million New York City land loan foreclosed and assigned a $94 million carrying value; $77 million Dallas multifamily loan foreclosed with a carrying value decline to $37 million.
• Quarterly portfolio activity -- Fiscal Q4 saw resolution of four loans via two regular repayments, one discounted payoff, and one foreclosure; in addition, a $30 million land loan classified as held for sale was sold.
• Credit downgrades -- A $220 million luxury hotel loan in Northern California was downgraded to a four risk rating, and three loans were downgraded to five, driving $283 million in specific CECL reserve provisions.
• CECL reserve -- Total CECL reserve increased to $443 million (10.9% of UPB) from $308 million (6.8% of UPB at Sept. 30); general CECL reserve declined to $78 million (2.9% of eligible UPB).
• REO asset dispositions -- Sold all office floors and signage of a mixed-use New York City property for $67 million, now marketing a fully leased retail component; New York hotel REO portfolio posted 14% annual NOI growth.
• Leverage reduction -- Net debt to equity ratio reduced from 2.4x to 1.9x in 2025; leverage decreased by $1.7 billion in 2025 and by an additional $300 million in early 2026.
• Corporate debt refinancing -- Retired $718 million Term Loan B and replaced with new $500 million senior secured term loan maturing in 2030, priced at SOFR plus 675 bps, with ten-year detachable warrants for 7.5 million shares at $4 per share (a 46% premium over the Jan. 30, 2026 closing price).
• Liquidity position -- Ended with $153 million in liquidity, up $51 million from prior year-end, despite aggressive deleveraging efforts.
• Portfolio transition outlook -- Management stated, "net interest income line is going to be choppy until we sort of turn the corner on the book and can get back to originations," pointing to further declines in NII as loan resolutions continue.

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Risks

• Quarterly provision for current expected credit losses was $212 million, with $283 million added to specific CECL reserves, reflecting downgrades and collateral value reductions, and a direct $46 million principal charge-off tied to a Connecticut office loan.
• John Michael McGillis said, "that top line interest income level is going to continue to compress" as loan resolutions and deleveraging reduce interest-earning assets, indicating NII may decline further in upcoming quarters.
• Lack of resolution terms for a $220 million luxury hotel loan, which matured in Aug. 2025 and was downgraded after inability to reach a modification agreement. Foreclosure proceedings have been initiated, introducing uncertainty.

Summary

Claros Mortgage Trust (NYSE:CMTG) significantly surpassed its 2025 loan resolution target, executing major portfolio reductions and completing the refinancing of its Term Loan B with a facility extending debt maturities to 2030. Asset exposures in office and land sectors were sharply curtailed, while total CECL reserves rose to 10.9% of UPB, reflecting management's action on downgraded and uncertain loans. Major REO asset sales boosted liquidity, and the company finished the year with $153 million in cash, while leverage ratios improved. Management called out a volatile near-term outlook for net interest income, citing continued loan resolutions and balance sheet repositioning.

• Ten-year detachable warrants for approximately 7.5 million shares were issued at a 46% premium to recent prices as part of the new corporate debt transaction.
• Management emphasized a strategic focus on completing portfolio cleanup before considering asset sales or other alternatives for shareholder value.
• REO hotel portfolio annual NOI grew approximately 14%, outperforming internal expectations and contributing positively to distributable earnings.
• Management noted improved market conditions, with increased repayments on performing loans and reduced need for extensions. However, management does not expect an immediate broad recovery in commercial real estate.

Industry glossary

• UPB (Unpaid Principal Balance): The remaining principal amount due on a loan, excluding accrued interest or fees.
• CECL (Current Expected Credit Losses): An accounting standard requiring recognition of expected lifetime credit losses on financial assets as reserves.
• REO (Real Estate Owned): Properties acquired by the lender, often through foreclosure, and held as assets until sale.
• SOFR (Secured Overnight Financing Rate): A benchmark interest rate for dollar-denominated derivatives and loans, based on overnight repo market transactions.

Full Conference Call Transcript

I will be your conference facilitator today. All participants will be in a listen-only mode. After the speakers' remarks, there will be a question-and-answer period. If you wish to ask a question at this time, please press star followed by one on your telephone keypads. I would now like to hand the call over to Anne Wynn, Vice President of Investor Relations at Claros Mortgage Trust, Inc. Please proceed. Thank you. Joined by Richard Jay Mack, Chief Executive Officer and Chairman of Claros Mortgage Trust, Inc.

Anne Wynn: And John Michael McGillis, President, Chief Financial Officer, and Director of Claros Mortgage Trust, Inc. We also have Priyanka Garg, Vice President who leads credit strategies for Mack Real Estate Group. Prior to this call, we distributed CMTG's earnings release and supplement. We encourage you to reference these documents in conjunction with the information presented on today's call. If you have any questions, please contact me. I would like to remind everyone that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those disclosed in our other filings with the SEC.

Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to update them. We will also be referring to certain non-GAAP financial measures on today's call such as distributable earnings, which we believe may be important to investors to assess our operating performance. For reconciliations of non-GAAP measures to the nearest GAAP equivalent, please refer to the earnings supplement. I will now turn the call over to Richard.

Richard Jay Mack: Thank you, Anne, and thank you all for joining us this morning for CMTG's fourth quarter earnings call. CMTG made a meaningful amount of progress last year, executing on several critical path items. In 2025, we accomplished the priorities we established at the start of the year, including resolving watch list loans, enhancing liquidity, and further deleveraging the portfolio. One year ago, we established a $2,000,000,000 total resolution target for 2025, and I am pleased to report that we meaningfully exceeded this target, closing the year with $2,500,000,000 of total resolutions. This included the resolution of 11 watch list loans representing an aggregate UPB of $1,300,000,000.

This activity reflects our commitment to repositioning the portfolio by transitioning out of watch list loans through thoughtful and decisive action. We also generated significant liquidity over the course of the year which we used to meaningfully delever the portfolio and to reduce corporate debt. This momentum has carried into the new year, $389,000,000 of full loan repayments happening including a New York City land loan that was a watch list loan that had been on nonaccrual since 2021. More importantly, subsequent to year end, we retired the Term Loan B that was scheduled to mature in August 2026.

The term loan had a balance of $718,000,000 in 2025 and was replaced with a new $500,000,000 senior secured loan from HPS. This facility has four years of duration. Mike will provide additional color on this financing later in the call. We view this financing agreement with HPS as a positive for CMTG, as it extends the maturity of our corporate debt to 2030 and provides the necessary flexibility to continue executing our business plan of resolving watch list loans, delevering our balance sheet, and reducing our capital costs over time. Looking ahead to the coming year, we remain optimistic but mindful of the macroeconomic backdrop and the uncertainty that has been a defining theme across the broader financial markets.

With regard to real estate, we do not believe there will be a single catalyst that will drive overnight recovery. Rather, we anticipate a period of gradual and steady improvement that will support transaction volume and investor confidence over time, especially if the bond market rally holds and rate cuts continue as expected. As it relates to property market fundamentals, we continue to observe encouraging indicators including a reduction in new supply, tightening credit spreads, and improving financing costs for new originations. We also see increased demand for industrial space and significant investments in areas such as artificial intelligence, and domestic manufacturing.

We believe that investments in domestic manufacturing will support job growth and incremental demand for real estate over time. While AI investments are likely to support future productivity gains, the impact on commercial real estate excluding data centers is still quite uncertain. Overall, we see a constructive backdrop for commercial real estate and CMTG in the years ahead. But in 2026, our focus will remain on asset management and decisive execution as we continue to resolve watch list loans and work through our REO assets. Our goal is to position the company to begin to evaluate new lending opportunities towards 2026 and lay the groundwork for portfolio growth subsequent years.

Before turning the call over to Mike, I want to acknowledge that the last 24 months have been the most challenging business period of my career and for many others in the real estate industry. And so I want to thank Mike, Priyanka, and our entire team for their dedication and hard work during this difficult time and their commitment to overcoming the remaining challenges that are still ahead. I look forward to providing an update on our continuing progress in the coming quarters. I will now turn the call over to Mike. Thank you, Richard. For 2025, CMTG reported a GAAP net loss of $1.56 per share and a distributable loss of $0.71 per share.

Distributable earnings prior to realized gains and losses were $0.02 per share. CMTG's held-for-loan portfolio continued to decline in the fourth quarter, decreasing to $3,700,000,000 at December 31, compared to $4,300,000,000 at September 30, and $6,100,000,000 at year end 2024. Over the course of 2025, we reduced our exposure to select asset types that have generally been experienced secular headwinds. As of 2025, the portfolio no longer includes

John Michael McGillis: stand-alone life science. Office exposure decreased from $859,000,000 to $589,000,000, land exposure decreased from $489,000,000 to $187,000,000. It is worth noting, however, that the decline in portfolio UPB over the past year was an inherent result of our strategy to turn over the portfolio and prepare for an eventual return to originations. Specific to the fourth quarter, the quarter-over-quarter decrease in UPB was primarily the result of four loan resolutions, consisting of two regular-way loan repayments, one on a multifamily asset and the other on a life science asset, both in Pennsylvania. The other two were resolved by way of a discounted payoff and a foreclosure.

In addition, as previously reported, we executed a sale of a $30,000,000 Boston land loan. This transaction did not impact fourth quarter portfolio UPB because it was previously classified as held for sale at the end of the third quarter. The discounted payoff related to a $150,000,000 previously four-rated office loan in Connecticut. Given the valuation of the collateral, we agreed to repayment at approximately 70% of par which we view as a good outcome given current market values and a challenging submarket and tenancy. The borrower was motivated to arrive at a resolution due to additional credit support that had been provided.

This transaction enabled us to resolve a watch list loan, reduce CMTG's office exposure, and generate approximately $35,000,000 in net liquidity for CMTG which was then used to reduce outstanding debt. The discounted payoff resulted in a $46,000,000 principal charge-off. However, it is worth noting that the impact to fourth quarter book value was marginal, as the potential loss had been previously contemplated within our general CECL reserve. Additionally, we resolved an $88,000,000 New York City watch list and nonaccrual land loan through a foreclosure process. The underlying collateral is a well-located, undeveloped land parcel adjacent to Hudson Yards that allows for mixed-use development.

After reviewing the facts and circumstances of this loan's history, we concluded that foreclosing and ultimately marketing the land for sale was the best path to resolving the loan. Upon foreclosure, we assigned a carrying value of $94,000,000 based on a third-party appraisal, approximately $6,000,000 greater than our UPB, which further supported our decision to foreclose as a means to optimize recovery. We do not anticipate being long-term holders of this land and expect to seek an exit sometime in 2026. As Richard mentioned, last year we exceeded our $2,000,000,000 loan UPB resolution target, achieving $2,500,000,000 of UPB in resolutions for the year.

This progress has continued into the new year with CMTG reporting an additional $389,000,000 in UPB of resolutions across four loans, which include two regular-way repayments. The first repayment was on a $67,000,000 New York City land loan that was previously a four-rated loan that had been on nonaccrual since 2021. The other was a $174,000,000 loan collateralized by a newly built multifamily property in Salt Lake City, which generated net cash proceeds of approximately $52,000,000. This asset delivered last fall, which allowed the borrower to secure refinancing to lower its cost of capital. In addition, in line with our previously mentioned plans, we foreclosed on a multifamily property in Dallas, $77,000,000 of UPB, that was previously five-rated.

Previously, the loan had a carrying value of $49,000,000 and was down to $37,000,000 upon foreclosure. And last, we resolved a $71,000,000 loan collateralized by a newly completed but vacant office property located in Seattle. Given the collateral value relative to our equity position, net of nonrecourse note-on-note financing, we determined the most prudent path was to transfer our rights and interests in our loan and the underlying collateral to the financing counterparty. Turning to portfolio credit. During the fourth quarter, the portfolio experienced a mix of ratings upgrades and downgrades. We downgraded a $220,000,000 loan collateralized by a luxury hotel property located in Northern California to a four risk rating.

We continue to have conviction in the asset given the exceptional asset quality and highly desirable location and meaningful year-over-year improvement in operating performance. That said, the loan matured in August 2025, and we have not reached terms in a modification with the borrower, which resulted in the downgrade to the loan's risk rating. We have also commenced foreclosure proceedings to provide additional optionality of outcomes. We also downgraded three loans to a five risk rating. In each case, the downgrades primarily reflect our decision to take a more aggressive approach in turning over the portfolio. I would like to provide some color on these loans.

The first loan is a $170,000,000 loan collateralized by a multifamily property located in Denver. We are actively pursuing a near-term resolution for this loan and are currently in the process of executing our plans related to the asset. While we are limited in what we can share at this time, we have adjusted the carrying value of the loan as of 12/31/2025 to appropriately reflect our expectations for the anticipated resolution. We look forward to providing an update on this loan in the near future. The second loan is a $225,000,000 loan collateralized by an office property located in Atlanta, Georgia, which matures in March.

This asset, similar to other office assets in the area, continues to experience the challenges that have generally weighed on the office sector. We are currently evaluating our options for this loan. The last loan was the Seattle office loan that I just spoke to that we resolved subsequent to the quarter. During the fourth quarter, we recorded a provision for current expected credit losses of $212,000,000 which primarily consisted of a $283,000,000 provision to our specific CECL reserve, prior principal charge-offs, and a $62,000,000 decrease in our general CECL reserve.

The $283,000,000 specific CECL reserve provision was primarily attributable to the three loans that were downgraded to a five risk rating during the quarter, changes to collateral values of previously five-rated loans, and the previously mentioned $46,000,000 principal charge-off relating to the Connecticut office loan. It is important to note that of the $283,000,000 specific CECL provision, $75,000,000 was related to loans that were resolved during the fourth quarter or in 2026 year to date. The decrease in general CECL reserve was primarily attributable to a reduction in the UPB of loans subject to general CECL reserves.

As a result, our total CECL reserve on loans receivable held for investment increased from $308,000,000 or 6.8% of UPB at September 30, to $443,000,000 or 10.9% of UPB at year end. Our general CECL reserve decreased from $140,000,000 or 3.9% of loans subject to our general CECL reserve to $78,000,000 or 2.9% of UPB of loans subject to our general CECL reserve. Turning to REO assets. We made significant progress with our mixed-use New York City REO asset during the quarter.

As a reminder, we completed the commercial condominiumization of the building in May and as of year end, we have sold all of the office floors as well as the signage component, generating total gross proceeds of $67,000,000 which was generally in line with our carrying value. We now intend to conduct a sale process for the fully leased retail component of the property. We believe this asset has served as an example of how we can leverage our sponsors' real estate expertise to creatively execute asset-level strategies and optimize outcomes. The New York REO hotel portfolio continues to perform well with operating results exceeding expectations and annual NOI growth of approximately 14%.

This asset has been accretive to earnings and given the refinancing we executed last year, we will continue monitoring the market for an opportune time to pursue an asset sale. Over the course of 2025, we strengthened the balance sheet by focusing on generating liquidity and reducing leverage by $1,700,000,000. We continued this focus into the new year by reducing leverage by an additional $300,000,000 of which $90,000,000 was applied to asset-level deleveraging payments and towards the repayment of the Term Loan B. As Richard mentioned, at the beginning of 2025, the Term Loan B had a balance of $718,000,000 and was scheduled to mature in August 2026.

In January 2026, we subsequently retired the Term Loan B and replaced it with a $500,000,000 senior secured term loan from HPS which matures in January 2030. This new senior secured term loan is priced at SOFR plus 675 basis points. And in connection with this financing, CMTG issued ten-year detachable warrants to purchase approximately 7,500,000 shares of its common stock at an exercise price of $4 per share which represents a 46% premium to the closing price for CMTG's common stock on 01/30/2026. In conjunction with the closing of the new term loan, we aligned and relaxed financial covenants across all of our financing facilities which provides additional flexibility to execute our business plan going forward.

Over the course of 2025, we decreased our net debt to equity ratio from 2.4x at 12/31/2024 to 1.9x at 12/31/2025. Following the closing of the senior secured term loan, we now have $153,000,000 in liquidity representing a $51,000,000 increase compared to the prior year end, despite the significant deleveraging that occurred in 2025. We accomplished a great deal in 2025, and we recognize there is more work ahead. By resolving watch list loans, generating liquidity, reducing leverage and subsequently addressing the Term Loan B maturity, we have strengthened the balance sheet and positioned the company well for the coming year. We look forward to building on this progress as we continue to execute across the portfolio.

We will now open for questions. Operator? Thank you.

Anh Huynh: Thank you. Please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Richard Barry Shane from JPMorgan. Your line is now open. Please go ahead.

Anne Wynn: Hey, guys. Thanks for taking my questions this morning. Look, I realize there's

John Michael McGillis: a lot of progress both in terms of repayments and loan sales and foreclosures. Obviously,

Richard Barry Shane: the significant reserves allow you guys or put you in a position to be able to negotiate resolutions for the loans. But obviously, you know, the stock is trading at an enormous discount to book. It is a very, very long path to earning, you know, generating a return that is anywhere near your hurdle rate. I think you guys know where I am headed, which is we have seen at least one transaction in the space where a REIT who was much further along the path in terms of recovery decided to sell their assets near NAV. Are there opportunities here outside of resolving this portfolio to create shareholder value?

Richard Jay Mack: Rick, thank you for that question. We are clearly always open to everything. But our goal right now has to be cleaning the book up so that it is a much more transparent and easier to understand

Richard Barry Shane: business.

Richard Jay Mack: And I think we have to wait until we are able to deliver that before we can really understand if the market can evaluate our business properly. And so I think that is where we are headed at the moment.

John Michael McGillis: Okay.

Richard Barry Shane: Thank you. And then to follow that up, you know, NII has been cut in half throughout the year over the course of the year. I am curious as we head into Q1 2026 and you think about the nonaccruals, and the movement in the portfolio, NII is pure net interest income, about $12,500,000 in the fourth quarter. Is it likely that it will be again lower in the first and second quarter of the year given how the portfolio is marked at this point?

John Michael McGillis: Yeah. Rick, I think that is this is Mike. I think that is a fair assumption because as we resolve loans and delever the book, and get regular-way payoffs, that top line interest income level is going to continue to compress. Deleveraging will offset that to a degree on the interest expense side. And then further resolutions of the nonaccrual loans or sub-earning assets should give us some capital to delever, which should help further reduce interest expense. But I think that is a reasonable assessment

Richard Barry Shane: But

John Michael McGillis: you know, we are in a process of transitioning the portfolio, so that net interest income line is going to be choppy until we sort of turn the corner on the book and can get back to originations.

Richard Barry Shane: Got it. And then just one last question. I apologize for going first and then asking so many questions. But you know, obviously, you guys are because you have indicated that the reserve levels position you to aggressively start to resolve or continue to resolve loans during 2026. When we look at the reserve levels and over $400,000,000, and I apologize, I will not look up the specific number. Realistically, what percentage of that reserve do you think could be translated into losses over the next 12 months? Is it 25%, 50%, 75%?

Just so that we can start to get some sense without knowing specifically what you guys are going to resolve, how quickly you think you are going to start resolving things.

Priyanka Garg: Hey, Rick. It is Priyanka. I will take that one, or I will start. We look. We are reserving based on what we think is appropriate at this time. We have resolved a tremendous number of loans in 2025. Half of them were on our watch list, and year to date, we have already resolved three additional loans on our watch list. So we think we have a good sense of the reserves that we need to take in order to accelerate resolutions and turn over the book. And so we think we are appropriately reserved for that now.

There can be new information, and we might have changes in this really dynamic environment depending on where negotiations with borrowers or financing counterparties or anything may go. But we think we are appropriately reserved today, and we have a lot of data points in a lot of different ways in terms of, you know, loan sales, which really tapered off throughout 2025, more doing DPOs and other transactions, foreclosures. We think we have a really good sense of where the reserve level should be.

Richard Barry Shane: Okay. I appreciate that. The question is more about the timing of those resolutions as opposed to the level of the reserve.

Priyanka Garg: Yeah. Yeah. The timing look. I think we

John Michael McGillis: Go ahead. Go ahead, Mike. It is okay. I was just going to say, I think we have Go ahead, Anne. Go ahead. I Should I call on somebody?

Priyanka Garg: Okay. I am going to start. So I think that the pace, I mean, we are really, really focused on accelerating the pace of dispositions, I mean, both within the loan book as well as in the REO book. We were we realized the value exactly what Richard said earlier, we need to turn over this portfolio and we need to make very clear where to demonstrate our book value. So I cannot I do not want to give you specific time frames, but I would hope that 2025 and our progress in 2025 suggests that we are moving very quickly, and we hope we are continuing to accelerate that.

And furthermore, the stability of our balance sheet after the transaction that we just closed in January really helps us do that with even more strength and speed.

Richard Barry Shane: Got it. I appreciate the answer. Thank you, guys.

John Michael McGillis: Thank you.

Anh Huynh: Our next question comes from John Ryan Nickodemus from BTIG. Please go ahead.

Richard Barry Shane: Morning, everyone. Thanks for the time.

Richard Jay Mack: With the Term Loan B refinancing completed, several more resolutions completed as well since we last spoke, how are you thinking about liquidity levels here in 2026? I know you are looking to improve them, and it is up year over year, but we did see it come down significantly since November, which is to be expected.

Doug Harter: Just trying to get a better handle on how we should think about the trajectory there for this year. Thanks.

John Michael McGillis: Sure. Thanks for the question. Well, I think a lot of the liquidity that was generated over the course of the year was used to deleverage the balance sheet, which we expect to continue to do as we continue resolving loans and our REO assets over the course of 2026. Given the deleveraging that we have done, we now have a pretty significant level of liquidity cushion over a minimum liquidity requirement, and faced with that and a very de minimis amount of future funding that we expect to occur on our existing loan portfolio, we feel that our liquidity is in a

Richard Jay Mack: very good

John Michael McGillis: position right now. And to the extent we generate incremental liquidity above those levels, we will continue to look to deleverage the balance sheet. But success for this year, by the end of the year, we are evaluating a variety of capital allocation options for available liquidity whether that is originating new loans, further deleveraging the balance sheet, or other kinds of capital allocation alternatives.

Doug Harter: Great. Thanks, Mike. That is really helpful. And then for my second question, kind of goes into what Priyanka was mentioning in response to Rick's last question. But we have heard a lot about improvements for, you know, the greater commercial real estate sort of transaction activity, liquidity, and also seen some of your peers talk about being more aggressive about resolving challenged loans or REO assets during this round of earnings. Given that backdrop, has that changed your for sort of the pace or timing of sales out of both the REO portfolio as well as resolutions from the watch list. Thanks.

Richard Jay Mack: So, John, thanks for that. This is Richard. I think we are in a much more constructive environment such that things that we had held off resolving we are going to have much better performance out of. However, I want to say that the market is not fully back. Transaction volume is still lower than we had anticipated we would be by this time. So I think we are trying to both react to the market and make the best execution that we can

Richard Barry Shane: while being

Richard Jay Mack: mindful that we need to quickly clean up our book. So it is a balance. I think, on the whole, we are more focused on execution and delivering a clean book than we are waiting for the market to recover, but we are getting a little bit of the benefit

Doug Harter: of

Richard Jay Mack: having waited on some of the assets that we are going to be able to resolve this year. And I think I am sure Priyanka would like to add something to this.

Priyanka Garg: Yeah. Yeah. Thanks, Richard. The only thing I would add, I agree with everything Richard said. I would add, though, that because of the healthier capital markets, both CMBS, banks coming back into the mix, we are just we are seeing more regular-way repayments, larger loans. So I think the theme we are going to see in this coming year are fewer extensions and modifications and more repayments on performing loans, which will then have an impact on NII as we talked about during Rick's question, but it will still help turn over the book, getting that excess cash, and then having the decision on how to allocate that capital.

John Michael McGillis: Great.

Doug Harter: Really appreciate it, Richard and Priyanka, and thanks for the answers.

Richard Jay Mack: Thank you.

Anh Huynh: Thank you. Our next question comes from Chris Mueller from Citizens Capital Markets. Your line is now open. Please go ahead.

John Michael McGillis: I guess, looking at your REO portfolio, most of the properties have some financing against them. And I see your comment that the hotel portfolio is the most profitable than the aggregate contribution to DE. But can you guys

Chris Mueller: about some of the individual NOIs within that REO portfolio?

Priyanka Garg: Yeah. Hi, Chris. I will take that one. It is Priyanka. We are now the NOI, so in the we have the mixed-use asset, which the only thing we are retaining is the fully leased retail. And so that is 100% leased. Tenants paying rent. So there is, you know, NOI coming off of that. That happens to be one that we are holding unlevered. In the multifamily assets that we have REO, it is a mixed bag. There are some that are generating real NOI, others that are a little bit more challenged from an NOI standpoint, but that is all part of the plan to foreclose.

The ones that are now generating NOI were not generating NOI when we foreclosed. So the point is to come in there and make sure that we are spending capital in smart ways accretively to, you know, market the asset appropriately to potential renters, and also be a present owner who is holding the property managers accountable. So I think that to the extent that assets do not have positive NOI or meaningful NOI, it is all part of the plan and certainly was expected.

And the last thing I would say is that capital that we are putting in there, you mentioned that these are financed, the financing facilities have structure in them where there is capital being held back for us to spend at the properties, and that is, you know,

Chris Mueller: not cash coming off the balance sheet.

John Michael McGillis: Got it. And that is a good segue into my follow-up here. Do you guys expect a lot or could you give a ballpark dollar amount of what you are expecting on CapEx for these REO properties?

Priyanka Garg: It is not going to be a meaningful amount. I mean, I hesitate to give you a specific number because a lot of that is going to depend on our hold periods. So, again, we are accelerating dispositions. You can see that in our earnings supplement on Page 8. We sort of call out where we are accelerating. And so I think to the extent these are shorter-term holds, we are going to spend less capital. But we want to be prepared to spend more if the hold is longer.

John Michael McGillis: Got it. That makes a lot of sense. And just one last

Tom Catherwood: quick one, if I could. Does the new term loan allow financing of watch list loans?

John Michael McGillis: We have a we already have a facility that allows us to

Chris Mueller: finance

John Michael McGillis: those loans. The new term loan is more of a corporate debt facility. So even though it is senior secured, it is more of a corporate mezzanine loan kind of structure, as opposed to an asset-specific financing structure, which is what we use at the direct asset level. Got it. Makes a lot of sense. Thanks again for taking the questions.

Anh Huynh: Thank you. We currently have no further questions, so I will hand back over to Richard for closing remarks.

Tom Catherwood: Well, I want to thank everyone for joining and for the questions. And

Richard Jay Mack: maybe summarize some of the things that we have mentioned today. 2025 and 2026 have been about resolving watch list loans, enhancing liquidity, deleveraging the book by $2,000,000,000. In 2025, there was $2,500,000,000 of resolutions. 2026, almost $400,000,000 so far. We got the TLB retired. We now have a relationship with HPS who is part of BlackRock, the largest asset manager in the world. All this amidst a constructive and improving real estate credit market, real estate capital market in general.

Anh Huynh: So

Richard Jay Mack: while we are not here to declare victory, we are seeing light at the end of the tunnel. And we are getting closer to a clean book that we expect will allow the Street to more appropriately value our stock. And that is really our goal every day when we come to the office.

Richard Barry Shane: And so it has been hard. It has been a long road.

Richard Jay Mack: But we are really excited to be feeling like we can see the light at the end of the tunnel and that the capital markets are cooperating with us. So we thank you for joining us, and for monitoring our progress and for the questions. And we will look forward to speaking again at the next quarterly call. Thank you all.

Anh Huynh: This concludes today's call. Thank you for joining us. You may now disconnect.

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