Granite Point Mortgage Trust Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter ended September 30, 2022; filed November 8, 2022. Granite Point is a commercial real estate lender focused mainly on originating and holding senior floating-rate mortgage loans and operates as a REIT.
Financial performance and position
| Metric | Q3 2022 / September 30, 2022 | Comparable period / prior date |
|---|---|---|
| Interest income | $52.8 million | $48.4 million in Q3 2021 |
| Interest expense | $34.5 million | $26.3 million in Q3 2021 |
| Net interest income | $18.3 million; 0.8% annualized net interest spread | $22.1 million; 1.6% spread in Q3 2021 |
| Net loss attributable to common stockholders | $29.1 million; $0.56 loss per basic share | $18.6 million net income; $0.34 per basic share in Q3 2021 |
| Distributable Earnings (non-GAAP) | $8.7 million; $0.17 per basic share | $5.1 million; $0.09 per basic share in Q3 2021 |
| Loan portfolio, net of allowance | $3.52 billion; 97 loans | $3.74 billion at December 31, 2021 |
| Allowance for credit losses | $82.6 million on loans; $85.5 million including unfunded commitments | $40.9 million on loans at December 31, 2021 |
| Common book value per share | $15.24 | $16.70 at December 31, 2021 |
| Cash and restricted cash | $213.7 million total, including $168.4 million unrestricted cash | $204.3 million total at December 31, 2021 |
For the first nine months of 2022, interest income was $149.4 million, net interest income $63.7 million, and net loss attributable to common stockholders $45.5 million, or $0.85 per basic share. Distributable Earnings were $22.9 million, or $0.43 per share, versus $41.6 million, or $0.76 per share, in the first nine months of 2021.
Cash flow for the first nine months: $40.8 million provided by operating activities, $171.3 million provided by investing activities, and $202.7 million used in financing activities. Cash, cash equivalents and restricted cash increased $9.4 million.
Debt, liquidity and portfolio
- Total debt carrying value was approximately $2.74 billion, comprising $1.20 billion of repurchase facilities, $1.22 billion of CRE CLO debt, $44.9 million of asset-specific financing and $274.3 million of convertible notes. The company repaid its term financing facility and senior secured term loans during 2022.
- Reported approved, unused borrowing capacity for liquidity purposes was zero, despite stated unused capacity under individual repurchase facilities. Unrestricted cash was $168.4 million; $45.2 million of restricted cash was also held, largely in CLO accounts.
- Debt maturities included $143.75 million principal of convertible notes due December 1, 2022, and $131.6 million principal due October 1, 2023. Repurchase facilities had $758.9 million due in 2023. The filing reports covenant compliance at quarter-end.
- Portfolio weighted-average risk rating was 2.6, compared with 2.5 at June 30, 2022. Four loans with $330.1 million aggregate principal were rated “5” and on nonaccrual; their carrying value was $279.3 million. Office loans represented 42.6% of portfolio carrying value.
- Q3 activity included one loan origination with $43.4 million funded, $28.4 million of additional loan fundings and $346.7 million of repayments and principal amortization. Unfunded loan commitments were $312.6 million.
- The company declared a $0.25 common dividend per share for Q3 and $0.4375 per Series A preferred share. Q3 common Distributable Earnings of $0.17 per share were below the declared common dividend.
Material changes, commentary and risks
- The $35.4 million Q3 credit-loss provision drove the GAAP loss. Management cited a more uncertain macroeconomic outlook, weaker credit fundamentals, market volatility and reduced liquidity, inflation and higher interest rates. Approximately $30.0 million of the quarterly reserve increase related to four collateral-dependent loans.
- Higher short-term rates lifted both asset yields and funding costs. Compared with Q2 2022, Q3 interest income rose $3.6 million, but interest expense rose $7.2 million and net interest income declined $3.6 million. Management noted that rate floors and nonaccrual loans can limit the offset from higher asset income.
- During the first nine months, the company recorded an $18.8 million loss on extinguishment of debt, chiefly associated with repaying senior secured term loans and the term financing facility. The GPMT 2018-FL1 CRE CLO was also redeemed.
- After quarter-end, the company resolved a previously nonaccrual $114.1 million retail loan through a deed-in-lieu transaction and provided the new ownership group a $77.3 million senior floating-rate loan.
- Management described inflation, Federal Reserve tightening, geopolitical disruption, COVID-19 effects, property-level operating challenges and reduced capital-market liquidity as ongoing risks. Higher rates may increase financing costs, slow repayments and lead borrowers to seek extensions; falling collateral values may trigger margin calls. LIBOR is scheduled to cease after June 30, 2023; transition to SOFR or another benchmark could affect borrowing costs.
- The filing gives no specific earnings or dividend guidance. Management said it is actively managing liquidity and may raise capital, borrow, sell assets, post collateral or change the dividend policy as conditions warrant. The company’s interest-rate sensitivity estimate indicates that an instantaneous 100-basis-point rise would increase annualized net interest income by about $7.4 million, while a 100-basis-point decline would reduce it by about $7.4 million; results are model-based and subject to assumptions.
- No material legal proceedings were reported. Management concluded disclosure controls were effective at quarter-end.
Important facts for investors to verify
- How the four risk-rating-5, nonaccrual loans perform, including the post-quarter resolution and new $77.3 million loan, and whether further credit provisions or realized losses arise.
- Whether recurring Distributable Earnings can support common dividends, given Q3 earnings of $0.17 per share versus a $0.25 dividend and year-to-date earnings of $0.43 versus $0.75 in dividends.
- How the December 2022 and October 2023 convertible-note maturities will be repaid, refinanced or converted, and whether liquidity or capital raising is required.
- Actual availability of financing and liquidity, including the distinction between facility-level unused capacity and the filing’s zero approved-unused borrowing capacity for its liquidity table.
- Effects of higher rates, LIBOR transition, potential margin calls, borrower extensions and office-property exposure on net interest spread, collateral values and covenant headroom.