Claros Mortgage Trust Stock

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Contributor, Benzinga
November 30, 2021
Last update: 10:28AM (Delayed 15-Minutes)
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Vol / Avg.9.810K / 194.928KMkt Cap1.524B
Day Range10.830 - 10.94052 Wk Range10.080 - 18.130

Whenever the discussion of real estate comes up, homebuyers tend to cringe, especially if they’re first-time participants looking to set down some roots. On the other end of the spectrum, sellers are reveling in their fortuitous bonanza as a low interest rate environment keeps the stream of cheap money flowing into the economy. However, the commercial real estate market is a slightly different animal.

This year, residential housing prices have been prone to emotions, leading to severe volatility. For instance, the Federal Housing Finance Agency noted that in Q2 of 2021, the housing price index hit an all-time high since records were kept, up 34% against a peak-to-peak comparison. On the flipside, while U.S. commercial property prices have steadily increased, the rate of incline is much more commensurate with the broader economic growth trajectory.

And because of the lack of intensely robust movement in the commercial real estate segment, the collective cranial hamster wheels have begun spinning at full bore among contrarian investors. As the Oracle of Omaha Warren Buffett suggested, be greedy when others are fearful and fearful when others are greedy.

That’s really the central investment thesis behind commercial property loan originator Claros Mortgage Trust.

When Did Claros Mortgage Trust IPO?

Normally, the common term you might hear related to real estate firms seeking the influx of capital markets is overstretched. With regular folks driven to an intense fervor, the premium associated with this sector seems unreasonable. While that’s an argument against residential properties, the commercial variant attracts its own criticisms.

Primarily, the COVID-19 pandemic did absolutely no favors for enterprise-specific land. As the global health crisis forced workers to shift their operations to their living rooms, suddenly high-demand properties were rendered to the backdrop of a post-apocalyptic science-fiction film. However, with companies recalling their employees in earnest because of declining new infections, Claros Mortgage Trust may turn out to be a welcome addition to the IPO calendar.

The company will make its public market debut on Nov. 3, with shares trading on the New York Stock Exchange under the ticker symbol CMTG. Morgan Stanley (NYSE: MS) and JPMorgan Chase & Co. (NYSE: JPM) represent the lead bookrunning managers for the deal. Several other major financial institutions, including Goldman Sachs & Co. (NYSE: GS) and Deutsche Bank (NYSE: DB), provide bookrunning support.

Last week on Oct. 26, Claros Mortgage announced that it commenced its roadshow for the upcoming IPO, or a meeting with prospective institutional and high-net-worth investors to drum up interest for the offering. Under its prospectus filed with the U.S. Securities and Exchange Commission (SEC), Claros disclosed that it would distribute 7 million shares of common stock at a price range between $18.65 and $19.65 per unit.

Per the company’s press release, Claros “intends to use the net proceeds from the offering to originate, co-originate and acquire senior and subordinate loans on transitional commercial real estate assets located primarily in major U.S. markets or for general corporate and working capital purposes.”

While no one can predict the ebb and flow of the new normal, CMTG stock appears to benefit from fortuitous timing. Since Q3 2020, the rate of improvement for commercial property prices on a year-over-year basis has increased conspicuously. Further, as worker bees gradually return to their posts, downwind businesses — think coffee shops, local eateries, automotive services — should benefit, thus bolstering valuations for commercial real estate.

Claros Mortgage Trust Financial History

As with any investment topic, the supporting narrative for Claros Mortgage Trust is nuanced and complicated. On the surface, the shift back to the office should offer a hearty tailwind for CMTG stock. From the latest data (July 2021) from the U.S. Bureau of Transportation, vehicle miles traveled is roughly equivalent to the level seen in 2017, the first year of the Trump administration that led to significant economic improvement just before COVID-19 struck.

Naturally, the movement of people bodes well for CMTG stock as it justifies expansion of the underlying commercial real estate market. Additionally, the National Association of Realtors (NAR) reports that certain sectors, notably retail and industrial, enjoy surprisingly resilient demand. Again, this dynamic is a net positive for those who are considering taking a shot with Claros’ IPO.

Still, the NAR cautions that gains in the employment level require more momentum to truly achieve parity with pre-pandemic highs. Further, consumers have increasingly shopped online, which if the trend continues could impose pressure on brick-and-mortar stores, an obvious headwind for CMTG stock.

However, the bigger picture for those considering CMTG stock is the scope of the underlying business. Since its founding in 2015 through the midway point of this year, Claros has raised approximately $2.6 billion of equity capital. Further, the company originated, co-originated or acquired 86 investments comprising 131 loans, leading to an aggregate loan commitment value of approximately $11.5 billion.

Not only that, the company was resilient during the worst of the pandemic, posting revenue of $273.71 million in 2020. This figure was up nearly 10% from the $249.6 million in sales generated in the prior year. Moreover, net income last year amounted to $205.7 million, up 18% year-over-year.

As well, free cash flow (FCF) — an important metric signifying the cash a business generates in excess of outlays for working capital needs and expenditures on fixed assets (i.e., capital expenditures) — stayed encouragingly positive in 2020 at $140.5 million. This level compares favorably to the nearly $130 million of FCF in 2019.

Claros Mortgage Trust Potential

While real-estate-related investments (and particularly IPOs) are always tricky as they encompass myriad factors into their valuation, CMTG stock has the advantage of a relative discount to its residential counterpart.

For instance, the Case-Shiller U.S. National Home Price Index shot up to an all-time high as of the latest read in August 2021. In fact, the index is up nearly 45% from the peak of the early 2007 housing bubble. Such extreme sentiment strongly suggests that the residential sector is overheated, whereas the same argument can’t be made for the commercial property sector.

However, on a month-to-month sequential basis, the Case-Shiller housing price index appears to have peaked in June of this year. If so, residential real estate investors may suffer from a declining market whereas the commercial side is just ramping up as businesses gradually return to normal operations.

Prospective buyers of CMTG stock should balance the upside potential of the Claros Mortgage IPO with its downside risks. Mainly, the commercial real estate sector can be volatile, dependent on underlying economic conditions as well as possible impact from investor expectations.

Such vibrance in the valuation structure of commercial properties is particularly concerning at the present juncture. For example, another wave of COVID-19 infections could again temporarily shutter businesses, which would be incredibly problematic for CMTG stock. As well, unforeseen global economic slowdowns stemming from a lost year in 2020 could impose ripple effects on commercial real estate.

How to Buy Claros Mortgage Trust IPO (CMTG) Stock

With CMTG stock set to enter the public arena shortly, most retail investors must acquire Claros shares at the open, which is the most straightforward process if you know how to buy stocks. If not, just follow the steps below.

Step 1: Pick a brokerage.

Thanks to digitalization and competition, most brokerages feature identical financial incentives. Therefore, you can advantage this circumstance by focusing your list of best brokers on platforms that provide the most access to alternative investment vehicles.

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Step 2: Decide how many shares you want.

Because IPOs delve into the unknown, you should mitigate your downside exposure by electing a balanced share count.

Step 3: Choose your order type.

Before placing your trade, memorize these market concepts.

  • Bid: The buyer’s best offer for a stock.
  • Ask: The seller’s lowest acceptable price.
  • Spread: The difference between the bid-ask price, the spread indicates market risk as this is also the profit margin for market makers.
  • Limit order: Buy or sell requests at a predetermined price, limit orders provide transparency but no execution guarantees.
  • Market order: Market orders guarantee fulfillment but only at the prevailing rate.
  • Stop-loss order: Stop-loss orders automatically exit your position at either a predetermined price or anything lower.
  • Stop-limit order: Stop-limit orders only leave positions at a specified price, but they also carry non-fulfillment risks.

Step 4: Execute your trade.

Follow these steps to execute a market order:

  1. Select your action type (buy or sell).
  2. Enter the shares you want to acquire (or sell).
  3. Hit the Buy (or Sell) button.

Follow the same sequence for limit orders (but include your execution price).

An IPO for Budding Tycoons

With so much money pouring into the housing market, investors have an opportunity to zig while others are zagging with commercial property specialist Claros Mortgage. To be fair, both property segments feature risk from the uncertainties of the pandemic. Nevertheless, the stable financials underlying CMTG stock could swing the needle in favor of the bulls.