DEEP VALUE REPORT — Claros Mortgage Trust ($CMTG)
Hidden Value in plain sight
How Much of the $8.58 Gets Back to Shareholders?
Claros Mortgage Trust reports $8.58 of book value per share. The stock traded around $2.20 in late July, after falling to $1.77 when we began looking at it. At that low, the entire common equity was worth about $255 million.
The discount is huge, but it is not mysterious.
CMTG owns a portfolio of commercial real estate loans and properties that may take years to resolve. Some borrowers are already in trouble. Several assets still need money. Most of the cash that comes back has to pass through senior participants, repo lenders and HPS before common shareholders see any of it.
So the important question is not whether CMTG reports $8.58 of book value. It is how much of that $8.58 can still be turned into cash.
More than $500 million has already been reserved against the weakest loans, and a few recent resolutions came in close to their reduced carrying values. That gives some credibility to the marks, but only some. A carrying value remains an estimate until a borrower repays or a property is sold.
The Park in Santa Monica is carried at $250 million after more than $150 million of reserves. Uptown Atlanta is leasing, but the cost of that leasing matters. The former Key Bridge Marriott is now a land and entitlement story. CMTG’s $125 million position in the Old Chicago Post Office sits behind $830 million of mortgage debt.
Every quarter matters. Interest keeps running. Properties need money. Legal and restructuring costs continue. The external manager keeps collecting fees. While one troubled asset is being worked out, another loan can slip.
For the common equity to work, CMTG has to resolve the existing problems faster than new ones appear. It does not need the full $8.58. It needs enough of the current marks to hold, enough cash to make it through the structure and enough value left when the lenders ahead of the common have been paid.
We went through it one asset, one lender and one layer at a time.
The full CMTG Deep Value Report continues below.
Below, we work through the main assets, the debt ahead of the common and the places where the recovery can still go wrong.