UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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: 001-38124
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(212 ) 364-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
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 | ☐ | ☒ | ||||||||||||
| 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 ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of May 4, 2023, there were 51,526,039 shares of outstanding common stock, par value $0.01 per share, issued and outstanding.
GRANITE POINT MORTGAGE TRUST INC.
INDEX
| Page | ||||||||
| PART I - FINANCIAL INFORMATION | ||||||||
Item 1. | Financial Statements (unaudited) | |||||||
| PART II - OTHER INFORMATION | ||||||||
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains, or incorporates by reference, not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Exchange Act of 1934, as amended, or the Exchange Act, and that are subject to the safe harbors created by such sections. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “target,” “believe,” “outlook,” “potential,” “continue,” “intend,” “seek,” “plan,” “goals,” “future,” “likely,” “may” and similar expressions or their negative forms, or by references to strategy, plans or intentions. By their nature, forward-looking statements speak only as of the date they are made, are not statements of historical facts or guarantees of future performance and are subject to risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify. Our expectations, beliefs and estimates are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and estimates will prove to be correct or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our Annual Report on Form 10-K for the year ended December 31, 2022, under the caption “Risk Factors.” Other risks, uncertainties and factors that could cause actual results to differ materially from those projected are described below and may be described from time to time in reports we file with the SEC, including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.
Important factors that may affect our actual results include, among others:
•the general political, economic and competitive conditions in the markets in which we invest, including with respect to the lagging effects of and ongoing impacts of the pandemic on various subsectors of the real estate market, and their impact on our loan portfolio, financial condition and business operations;
•accelerating inflationary trends, spurred by multiple factors including high commodity prices, a tight labor market, and low residential vacancy rates, may result further in interest rate increases and lead to increased market volatility;
•higher interest rates imposed by the Federal Reserve may lead to a decrease in prepayment timing and 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;
•the economic impact of escalating global trade tensions, including the conflict between Russia and Ukraine and the adoption or expansion of economic sanctions or trade restrictions;
•reduced demand for office, multifamily or retail space, including as a result of the COVID-19 pandemic and/or hybrid work schedules which allow work from remote locations other than the employer's office premises;
•defaults by borrowers in paying debt service on outstanding indebtedness and borrowers' abilities to manage and stabilize properties;
•our ability to obtain or maintain financing arrangements on terms favorable to us or at all;
•the level and volatility of prevailing interest rates and credit spreads;
•reductions in the yield on our investments and increases in the cost of our financing;
•general volatility of the securities markets in which we participate and the potential need to post additional collateral on our financing arrangements;
•the return or impact of current or future investments;
•changes in our business, investment strategies or target investments;
•increased competition from entities investing in our target investments;
•effects of hedging instruments on our target investments;
•changes in governmental regulations, tax law and rates and similar matters;
•our ability to maintain our qualification as a real estate investment trust, or REIT, for U.S. federal income tax purposes and our exclusion from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act;
•availability of desirable investment opportunities;
•threats to information security, including by way of cyber-attacks;
•availability of qualified personnel;
•operational failures by third parties on whom we rely in the conduct of our business;
ii
•estimates relating to our ability to make distributions to our stockholders in the future;
•acts of God, such as hurricanes, earthquakes and other natural disasters, including climate change-related risks, acts of war and/or terrorism, pandemics or outbreaks of infectious disease and other events that may cause unanticipated and uninsured performance declines and/or losses to us or the owners and operators of the real estate securing our investments;
•deterioration in the performance of the properties securing our investments that may cause deterioration in the performance of our investments, risks in collection of contractual interest payments and, potentially, principal losses to us, including the risk of credit loss charges and any impact on our ability to satisfy the covenants and conditions in our debt agreements; and
•difficulty or delays in redeploying the proceeds from repayments of our existing investments.
This Quarterly Report on Form 10-Q may contain statistics and other data that, in some cases, have been obtained or compiled from information made available by loan servicers and other third-party service providers.
iii
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| March 31, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Loans held-for-investment | $ | $ | |||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Loans held-for-investment, net | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Accrued interest receivable | |||||||||||
| Other assets | |||||||||||
Total Assets (1) | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Liabilities | |||||||||||
| Repurchase facilities | $ | $ | |||||||||
| Securitized debt obligations | |||||||||||
| Asset-specific financings | |||||||||||
| Secured credit facility | |||||||||||
| Convertible senior notes | |||||||||||
| Dividends payable | |||||||||||
| Other liabilities | |||||||||||
Total Liabilities (1) | |||||||||||
| Commitments and Contingencies (see Note 10) | |||||||||||
| Stockholders’ Equity | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Cumulative earnings | |||||||||||
| Cumulative distributions to stockholders | ( | ( | |||||||||
| Total Granite Point Mortgage Trust Inc. Stockholders’ Equity | |||||||||||
| Non-controlling interests | |||||||||||
| Total Equity | $ | $ | |||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | |||||||||
____________________
(1)The condensed consolidated balance sheets include assets of consolidated variable interest entities, or VIEs, that can only be used to settle obligations of these VIEs, and liabilities of the consolidated VIEs for which creditors do not have recourse to Granite Point Mortgage Trust Inc. At March 31, 2023, and December 31, 2022, assets of the VIEs totaled $1,280,560 and $1,551,936 , respectively, and liabilities of the VIEs totaled $1,041,473 and $1,141,028 , respectively. See Note 4 - Variable Interest Entities and Securitized Debt Obligations for additional information.
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands, except share data)
| Three Months Ended | ||||||||||||||
| March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Interest income: | ||||||||||||||
| Loans held-for-investment | $ | $ | ||||||||||||
| Cash and cash equivalents | ||||||||||||||
| Total interest income | ||||||||||||||
| Interest expense: | ||||||||||||||
| Repurchase facilities | ||||||||||||||
| Secured credit facility | ||||||||||||||
| Securitized debt obligations | ||||||||||||||
| Convertible senior notes | ||||||||||||||
| Term financing facility | ||||||||||||||
| Asset-specific financings | ||||||||||||||
| Senior secured term loan facilities | ||||||||||||||
| Total interest expense | ||||||||||||||
| Net interest income | ||||||||||||||
| Other (loss) income: | ||||||||||||||
| Provision for credit losses | ( | ( | ||||||||||||
| Gain (loss) on extinguishment of debt | ( | |||||||||||||
| Fee income | ||||||||||||||
| Total other (loss) income | ( | ( | ||||||||||||
| Expenses: | ||||||||||||||
| Compensation and benefits | ||||||||||||||
| Servicing expenses | ||||||||||||||
| Other operating expenses | ||||||||||||||
| Total expenses | ||||||||||||||
| (Loss) income before income taxes | ( | |||||||||||||
| Provision for (benefit from) income taxes | ( | |||||||||||||
Net (loss) income | ( | |||||||||||||
Dividends on preferred stock | ||||||||||||||
| Net (loss) income attributable to common stockholders | $ | ( | $ | |||||||||||
Basic (loss) earnings per weighted average common share | $ | ( | $ | |||||||||||
Diluted (loss) earnings per weighted average common share | $ | ( | $ | |||||||||||
Weighted average number of shares of common stock outstanding: | ||||||||||||||
Basic | ||||||||||||||
Diluted | ||||||||||||||
| Net (loss) income attributable to common stockholders | $ | ( | $ | |||||||||||
| Comprehensive (loss) income | $ | ( | $ | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
GRANITE POINT MORTGAGE TRUST INC
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
| Common Stock | Preferred Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-in Capital | Cumulative Earnings | Cumulative Distributions to Stockholders | Total Stockholders’ Equity | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred stock, net of offering costs | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeiture | ( | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted Stock Unit (RSU) forfeiture | — | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Preferred dividends declared, $ | — | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Preferred dividends declared, $ | — | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Common dividends declared, $ | — | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Non-cash equity award compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock forfeiture | ( | ( | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted Stock Unit (RSU) forfeiture | — | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Preferred dividends declared, $ | — | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Preferred dividends declared, $ | — | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Common dividends declared, $ | — | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Non-cash equity award compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash Flows From Operating Activities: | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||
Accretion of discounts and net deferred fees on loans held-for-investment and deferred interest capitalized to loans held-for-investment | ( | ( | |||||||||
Amortization of deferred debt issuance costs | |||||||||||
| Provision for credit losses | |||||||||||
| (Gain) loss on extinguishment of debt | ( | ||||||||||
| Amortization of equity-based compensation | |||||||||||
| Proceeds received from deferred interest capitalized on loans held-for-investment | |||||||||||
| Net change in assets and liabilities: | |||||||||||
| (Increase) decrease in accrued interest receivable | ( | ( | |||||||||
| Decrease (increase) in other assets | |||||||||||
| Increase (decrease) in other liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash Flows From Investing Activities: | |||||||||||
Originations, acquisitions and additional fundings of loans held-for-investment, net of deferred fees | ( | ( | |||||||||
| Proceeds from loan sales | |||||||||||
| Proceeds from repayment of loans held-for-investment | |||||||||||
| Increase in other assets, due from servicer on repayments of loans held-for-investment | ( | ( | |||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Cash Flows From Financing Activities: | |||||||||||
| Proceeds from repurchase facilities | |||||||||||
| Principal payments on repurchase facilities | ( | ( | |||||||||
| Principal payments on securitized debt obligations | ( | ( | |||||||||
| Repayment of senior secured term loan facilities | ( | ||||||||||
| Proceeds from asset-specific financings | |||||||||||
| Payment of debt issuance costs | ( | ( | |||||||||
| Proceeds from issuance of preferred stock, net of offering costs | |||||||||||
| Tax withholding on restricted stock and RSUs | ( | ( | |||||||||
| Repurchase of common stock | ( | ||||||||||
| Dividends paid on preferred stock | ( | ( | |||||||||
| Dividends paid on common stock | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | |||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | |||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | |||||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for taxes | $ | $ | |||||||||
| Noncash Activities: | |||||||||||
| Dividends declared but not paid at end of period | $ | $ | |||||||||
| Deferred financing costs, not yet paid | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
Note 1. Organization and Operations
Granite Point Mortgage Trust Inc., or the Company, is an internally managed real estate finance company that focuses primarily on directly originating, investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments. These investments are capitalized by accessing a variety of funding sources, including borrowing under the Company’s bank credit facilities or other asset-specific financings, issuing commercial real estate collateralized loan obligations, or CRE CLOs, and issuing other forms of secured and unsecured debt and equity securities, depending on market conditions and the Company’s view of the most appropriate funding option available for the Company’s investments. The Company is not in the business of buying or trading securities, and the only securities it owns are the retained interests from its CRE CLOs. The Company’s investment objective is to preserve the Company’s stockholders’ capital while generating attractive risk-adjusted returns over the long term, primarily through dividends derived from current income produced by the Company’s investment portfolio. The Company’s common stock is listed on the NYSE under the symbol “GPMT”. The Company operates its business in a manner that is intended to permit it to maintain its exclusion from registration under the Investment Company Act of 1940, or the Investment Company Act. The Company operates its business as one segment. The Company was incorporated in Maryland on April 7, 2017, and commenced operations as a publicly traded company on June 28, 2017.
The Company has elected to be treated as a real estate investment trust, or REIT, as defined under the Internal Revenue Code of 1986, as amended, or the Code, for U.S. federal income tax purposes. As long as the Company continues to comply with a number of requirements under federal tax law and maintains its qualification as a REIT, the Company generally will not be subject to U.S. federal income taxes to the extent that the Company distributes its taxable income to its stockholders on an annual basis and does not engage in prohibited transactions. However, certain activities that the Company may perform may cause it to earn income which will not be qualifying income for REIT purposes. The Company has designated one of its subsidiaries as a taxable REIT subsidiary, or TRS, as defined in the Code, to engage in such activities.
Note 2. Basis of Presentation and Significant Accounting Policies
Consolidation and Basis of Presentation
The interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, have been condensed or omitted according to such SEC rules and regulations. However, management believes that the disclosures included in these interim condensed consolidated financial statements are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at March 31, 2023, and results of operations for all periods presented have been made. The results of operations for the three months ended March 31, 2023, should not be construed as indicative of the results to be expected for future periods or the full year.
The unaudited condensed consolidated financial statements of the Company include the accounts of all subsidiaries; inter-company accounts and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation.
All entities in which the Company holds investments that are considered variable interest entities, or VIEs, for financial reporting purposes were reviewed for consolidation under the applicable consolidation guidance. Whenever the Company has both the power to direct the activities of an entity that most significantly impact the entity’s performance, and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, the Company consolidates the entity.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make a number of significant estimates. These include estimates of amount and timing of allowances for credit losses, fair value of certain assets and liabilities, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of certain revenues and expenses during the reported period. It is likely that changes in these estimates (e.g., valuation changes to the underlying collateral of loans due to changes in market interest and capitalization rates, leasing, credit worthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders, overall economic and capital markets conditions, the broader commercial real estate market, local geographic sub-markets or other factors) will occur in the near term.
5
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
Significant Accounting Policies
Included in Note 2 to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, is a summary of the Company’s significant accounting policies. Provided below is a summary of additional accounting policies that are significant to the Company’s condensed consolidated financial condition and results of operations for the three months ended March 31, 2023.
Recently Issued and/or Adopted Accounting Standards
Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, or ASU 2022-02. The new guidance is based on whether a modification or restructuring with a borrower experiencing financial difficulty results in principal forgiveness, an interest rate reduction, a significant payment delay or term extension as opposed to simply a concession. The new guidance requires disclosure by class of financing receivables, of the types of modifications, the financial effects of those modifications and the performance of those modified receivables in the last twelve months. As it relates to ASC 326-20, the Company is now allowed to use any acceptable method to determine credit losses as a result of modification or restructuring with a borrower experiencing financial difficulty. ASU 2022-02 also requires disclosure of gross write-offs recorded in the current period, on a year-to-date basis, and by year of origination in the vintage disclosures. On January 1, 2023, the Company adopted ASU 2022-02 on a prospective basis and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.
Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, or ASU No. 2020-04, which provides optional expedients and exceptions for applying GAAP to debt instruments, derivatives, and other contracts that reference the London Interbank Offered Rate, or LIBOR, or other reference rates expected to be discontinued as a result of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. ASU No. 2020-04 and ASU No. 2021-01 are effective for all entities and may be adopted retrospectively as of any date from the beginning of any interim period that includes or is subsequent to March 12, 2020. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848) to defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024. The Company has loan agreements and debt agreements that incorporate LIBOR as a referenced interest rate. It is difficult to predict the ultimate impacts of the phase-out of LIBOR and the use of alternative benchmarks, such as the Secured Overnight Financing Rate, or SOFR (a new index calculated by short-term repurchase agreements, backed by Treasury securities), on the Company’s business or on the overall financial markets. The Company has not adopted any of the optional expedients or exceptions through March 31, 2023, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.
Note 3. Loans Held-for-Investment, Net of Allowance for Credit Losses
6
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
The following tables summarize the Company’s loans held-for-investment by asset type, property type and geographic location as of March 31, 2023, and December 31, 2022:
| March 31, 2023 | |||||||||||||||||
| (dollars in thousands) | Senior Loans (1) | B-Notes | Total | ||||||||||||||
| Unpaid principal balance | $ | $ | $ | ||||||||||||||
Unamortized (discount) premium | ( | ( | |||||||||||||||
Unamortized net deferred origination fees | ( | ( | |||||||||||||||
| Allowance for credit losses | ( | ( | ( | ||||||||||||||
| Carrying value | $ | $ | $ | ||||||||||||||
| Unfunded commitments | $ | $ | $ | ||||||||||||||
| Number of loans | |||||||||||||||||
| Weighted average coupon | % | % | % | ||||||||||||||
Weighted average years to maturity (2) | |||||||||||||||||
| December 31, 2022 | |||||||||||||||||
| (dollars in thousands) | Senior Loans (1) | B-Notes | Total | ||||||||||||||
| Unpaid principal balance | $ | $ | $ | ||||||||||||||
Unamortized (discount) premium | ( | ( | |||||||||||||||
Unamortized net deferred origination fees | ( | ( | |||||||||||||||
| Allowance for credit losses | ( | ( | ( | ||||||||||||||
| Carrying value | $ | $ | $ | ||||||||||||||
| Unfunded commitments | $ | $ | $ | ||||||||||||||
| Number of loans | |||||||||||||||||
| Weighted average coupon | % | % | % | ||||||||||||||
Weighted average years to maturity (2) | |||||||||||||||||
____________________
(1)Loans primarily secured by a first priority lien on commercial real property and related personal property and also includes, when applicable, any companion subordinate loans.
(2)Based on contractual maturity date. Certain loans are subject to contractual extension options with such conditions stipulated in the applicable loan documents. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a prepayment fee. The Company may also extend contractual maturities in connection with certain loan modifications.
| (dollars in thousands) | March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||
| Property Type | Carrying Value | % of Loan Portfolio | Carrying Value | % of Loan Portfolio | ||||||||||||||||||||||
| Office | $ | % | $ | % | ||||||||||||||||||||||
| Multifamily | % | % | ||||||||||||||||||||||||
| Hotel | % | % | ||||||||||||||||||||||||
| Retail | % | % | ||||||||||||||||||||||||
| Industrial | % | % | ||||||||||||||||||||||||
| Other | % | % | ||||||||||||||||||||||||
| Total | $ | % | $ | % | ||||||||||||||||||||||
7
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
| (dollars in thousands) | March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||
| Geographic Location | Carrying Value | % of Loan Portfolio | Carrying Value | % of Loan Portfolio | ||||||||||||||||||||||
| Northeast | $ | % | $ | % | ||||||||||||||||||||||
| Southwest | % | % | ||||||||||||||||||||||||
| West | % | % | ||||||||||||||||||||||||
| Midwest | % | % | ||||||||||||||||||||||||
| Southeast | % | % | ||||||||||||||||||||||||
| Total | $ | % | $ | % | ||||||||||||||||||||||
At March 31, 2023, and December 31, 2022, loans held-for-investment with a carrying value, net of allowance for credit losses, of $3.2 billion and $3.2 billion, respectively, collateralized the Company’s secured financing agreements and CRE CLOs. See Note 4 - Variable Interest Entities and Securitized Debt Obligations and Note 5 - Secured Financing Agreements.
The following table summarizes activity related to loans held-for-investment, net of allowance for credit losses, for the three months ended March 31, 2023, and 2022:
| Three Months Ended March 31, | ||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||
| Balance at beginning of period | $ | |||||||||||||
| Originations, additional fundings, upsizing of loans and capitalized deferred interest | ||||||||||||||
| Repayments | ( | ( | ||||||||||||
| Loan sales | ( | |||||||||||||
| Net discount accretion (premium amortization) | ||||||||||||||
| Increase in net deferred origination fees | ( | ( | ||||||||||||
| Amortization of net deferred origination fees | ||||||||||||||
| (Provision for) benefit from credit losses | ( | ( | ||||||||||||
| Balance at end of period | $ | $ | ||||||||||||
Allowance for Credit Losses
To estimate and recognize an allowance for credit losses on loans held-for-investment and the related unfunded commitments, the Company continues to use a third-party licensed probability-weighted analytical model. The Company employs quarterly updated macroeconomic forecasts, which reflect expectations for overall economic output, unemployment rates, interest rates, values of real estate properties and other factors, including the lagging effects of the pandemic, geopolitical and banking system instability, the Federal Reserve monetary policy impacts on the overall U.S. economy, and commercial real estate markets generally. Significant inputs to the Company’s estimate of the allowance for credit losses include loan-specific factors such as debt-service coverage ratio, or DSCR, loan-to-value ratio, or LTV, remaining contractual loan term, property type and others. Additionally, there are a number of significant assumptions and qualitative factors included when determining the Company’s estimates, including, but not limited to, macroeconomic conditions and general portfolio trends. As part of the quarterly review of the portfolio, the Company assesses the expected repayment date of each loan, which is used to determine the contractual term for purposes of computing the current expected credit loss, or CECL, reserve. In certain instances, for loans with unique risk and credit characteristics, the Company may instead elect to employ different methods to estimate an allowance for credit losses.
As of March 31, 2023, the Company recognized an allowance for credit losses related to its loans held-for-investment of $128.5 million, which reflects a provision for credit losses of $46.1 million for the three months ended March 31, 2023. The increase in the Company’s allowance for credit losses was impacted by an increasingly uncertain macroeconomic outlook which includes weakening in credit fundamentals, global market volatility, reduced liquidity in the capital markets especially for certain property types such as office assets located in underperforming markets, and inflationary expectations resulting in meaningfully higher interest rates, and uncertainty with respect to the geopolitical environment. The increase in the Company’s CECL reserve was primarily driven by recording an increase in the allowance for collateral-dependent loans during the three months ended March 31, 2023, that were individually assessed in accordance with ASU 2016-13. The collateral properties securing these loans have been affected by the above factors, resulting in slowing of business plan execution and reduced market liquidity impacting the borrowers’ ability to either sell or refinance their properties.
8
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
As of March 31, 2023, the Company had five collateral-dependent loans with an aggregate principal balance of $274.8 million, for which the Company recorded an allowance for credit losses of $67.5 million. Four collateral-dependent loans were first mortgage loans secured by office properties and one first mortgage loan secured by a hotel property, each of which were individually assessed in accordance with ASU 2016-13 during the three months ended March 31, 2023. See Note 9 - Fair Value, for further detail. The remaining increase in the Company’s allowance for credit losses was mainly related to implementing in its analysis more conservative macroeconomic forecasts including more emphasis on recessionary scenarios driven by the factors discussed above.
The allowance for credit losses related to the Company’s loans held-for-investment is deducted from the amortized cost basis of related loans, while the allowance for credit losses related to off-balance sheet unfunded commitments on existing loans is recorded as a component of other liabilities on the Company’s condensed consolidated balance sheets. As of March 31, 2023, the Company recognized $4.5 million in other liabilities related to the allowance for credit losses on unfunded commitments and recorded a provision for credit losses of $0.3 million for the three months ended March 31, 2023. Changes in the provision for credit losses for both loans held-for-investment and their related unfunded commitments are recognized through net (loss) income on the Company’s condensed consolidated statements of comprehensive income.
The following table presents the changes for the three months ended March 31, 2023, and 2022 in the allowance for credit losses on loans held-for-investment:
| Three Months Ended March 31, | ||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||
| Balance at beginning of period | $ | $ | ||||||||||||
| Provision for (benefit from) credit losses | ||||||||||||||
| Write-off | ( | |||||||||||||
| Balance at end of period | $ | $ | ||||||||||||
During the three months ended March 31, 2023, one first mortgage loan with a principal balance of $27.5 million collateralized by a hotel property was downgraded to a risk rating of “5” as a result of the collateral property’s operating performance being adversely affected by the lagging travel trends impacting the local hotel occupancy rates, capital markets volatility and other factors (see “Loan Risk Ratings” below). The Company held this loan on nonaccrual status as of March 31, 2023.
Generally, loans held-for-investment are placed on nonaccrual status when delinquent for more than 90 days or earlier when determined not to be probable of full collection. Interest income recognition is suspended when loans are placed on nonaccrual status. As of March 31, 2023, the Company has five senior loans with a total unpaid principal balance of $274.8 million and carrying value of $207.2 million that are held on nonaccrual status. No other loans were considered past due, and no other loans were held on nonaccrual status as of March 31, 2023.
The following table presents the carrying value of loans held-for-investment on nonaccrual status for the three months ended March 31, 2023, and 2022:
| Three Months Ended March 31, | ||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||
| Nonaccrual loan carrying value at beginning of period | $ | $ | ||||||||||||
| Addition of nonaccrual loan carrying value | $ | $ | ||||||||||||
| Reduction of nonaccrual loan carrying value | $ | ( | $ | ( | ||||||||||
| Nonaccrual loan carrying value at end of period | $ | $ | ||||||||||||
9
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
The following tables summarize the aging analysis of accrued interest past due on the carrying value of the Company’s loans held-for-investment as of March 31, 2023, and December 31, 2022: