Granite Point Mortgage Trust Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; filed February 25, 2022. This filing reports annual results, not a standalone fourth-quarter income statement. Granite Point is an internally managed commercial real estate finance REIT focused primarily on originating and holding senior floating-rate mortgage loans.
Key financial and operating metrics
| Metric | FY2021 / Dec. 31, 2021 | Prior comparable period |
|---|---|---|
| Net income attributable to common stockholders | $67.6 million; $1.24 per basic share | FY2020: loss of $40.5 million; loss of $0.73 per share |
| Distributable Earnings (non-GAAP) | $54.3 million; $0.99 per basic share | FY2020: $64.7 million; $1.17 per share |
| Common dividends declared | $1.00 per share | FY2020: $0.65 per share |
| Net interest income / spread | $92.7 million / 1.8% | FY2020: $124.8 million / 2.3% |
| Interest income / expense | $198.3 million / $105.6 million | FY2020: $237.7 million / $112.9 million |
| Book value per common share | $16.70, including $0.79 per share of CECL reserve | Dec. 31, 2020: $16.92 |
| Loans held for investment, net | $3.74 billion | Dec. 31, 2020: $3.85 billion |
| Total assets / equity | $3.99 billion / $1.01 billion | Dec. 31, 2020: $4.22 billion / $933.8 million |
| Cash from operating activities | $60.3 million | FY2020: $20.3 million |
| Cash, cash equivalents and restricted cash | $204.3 million at year-end; unrestricted cash was $191.9 million | $329.2 million at Dec. 31, 2020 |
| Total debt-to-equity ratio, net of cash | 2.7:1.0 | Dec. 31, 2020: 3.2:1.0 |
Portfolio, debt and liquidity
- At year-end, the portfolio comprised 105 loans: $3.80 billion unpaid principal, $3.74 billion carrying value and $403.6 million of unfunded commitments. Weighted-average stabilized LTV at origination was 63.5%; all-in yield at origination was L+4.07%.
- 98.8% of portfolio carrying value earned floating rates. Office loans were 45.5% of carrying value, multifamily 28.4%, hotels 12.4% and retail 9.1%.
- Debt carrying amounts totaled approximately $2.94 billion, comprising $1.68 billion of CRE CLO obligations, $677.3 million of repurchase borrowings, $127.1 million term financing, $43.6 million asset-specific financing, $139.9 million senior secured term loans and $272.9 million convertible notes.
- CRE CLOs financed 59.7% of portfolio principal on a term-matched, non-recourse and non-mark-to-market basis. Non-mark-to-market financing was 73.2% of loan-level financing. Repurchase facilities carried a weighted-average borrowing rate of about 2.2% and weighted-average remaining maturity of 0.8 years.
- Management reported compliance with financial covenants. Unrestricted cash was $191.9 million; the filing reports no approved but unused borrowing capacity in its liquidity summary. The company also had $403.6 million of loan commitments to fund.
- Cash, cash equivalents and restricted cash fell by $124.9 million during the year: operating activities provided $60.3 million, investing activities provided $139.8 million and financing activities used $325.0 million.
Material changes versus FY2020
- GAAP results turned from a $40.5 million common-stockholder loss to $67.6 million of income. The improvement included a $20.0 million benefit from credit-loss provisions, compared with a $53.7 million provision in 2020; FY2020 also included $46.3 million of restructuring charges and loan-sale losses.
- Despite the GAAP turnaround, Distributable Earnings fell 16% to $54.3 million, and net interest income declined $32.1 million. Lower average loan balances and lower average LIBOR reduced interest income; lower average borrowings and LIBOR reduced interest expense, partly offset by new financing costs.
- Loan originations increased to $673.6 million funded at origination, from $125.2 million in 2020; repayments rose to $960.3 million from $517.3 million. The portfolio’s weighted-average risk rating improved to 2.6 from 2.7, while loans rated “5” increased to two loans totaling $168.1 million principal.
- Financing mix shifted materially: CRE CLO debt rose to $1.68 billion from $927.1 million, while repurchase borrowings fell to $677.3 million from $1.71 billion. Total leverage declined to 2.7:1.0 from 3.2:1.0.
- The company issued 4.60 million Series A preferred shares for $110.5 million net proceeds, prepaid $75 million of secured term debt, and settled all outstanding warrants for about $32.1 million net cash. It repurchased 1.30 million common shares for $17.8 million.
Outlook, management commentary and risks
- No numerical earnings or dividend guidance is provided. Management intends to maintain REIT status and distribute substantially all taxable income, but dividends remain subject to board discretion, operating results, liquidity, covenants and market conditions. The declared $1.00 common dividend exceeded FY2021 Distributable Earnings of $0.99 per share.
- Management said the portfolio collected 100% of contractual interest due in 2021, taking account of modifications and two nonaccrual loans. It described improving portfolio performance and macroeconomic expectations, but noted ongoing uncertainty from COVID-19, variants, inflation, supply and labor pressures, and commercial property-market conditions.
- The year-end CECL allowance was $40.9 million against loans, plus $1.5 million for unfunded commitments; the filing’s $42.4 million total reserve also reflects a $9.7 million loan write-off during the year. Two loans totaling $168.1 million principal were on nonaccrual, including a modified retail loan and a troubled office loan, both past maturity and assigned risk rating 5.
- Interest-rate exposure is significant: 98.8% of loans and all financing arrangements other than convertible notes and senior secured term facilities referenced LIBOR. LIBOR cessation was expected after June 30, 2023; transition terms could affect borrowing costs and asset-liability matching. The filing’s modeled 100-basis-point increase reduced projected annualized net interest income by $15.3 million, while a 100-basis-point decrease increased it by $2.3 million, subject to assumptions and rate floors.
- Key risks include borrower defaults and collateral-value declines; short-term or mark-to-market financing, margin calls and refinancing; rising funding costs and rate mismatches; concentration in office and other property types; the ability to meet unfunded commitments; and access to capital. Further risks include REIT qualification, Investment Company Act exclusions, competition, climate-related property impacts and cyber incidents.
- Subsequent events: the company issued an additional 3.63 million Series A preferred shares for $87.4 million net proceeds in January and February 2022, and prepaid another $50 million of secured term loans, incurring a reported $5.8 million early-extinguishment charge.
Important facts for investors to verify
- Review the performance, collateral valuations, maturity status and resolution plans for the two risk-rating-5, nonaccrual loans; assess the assumptions behind the $40.9 million loan allowance and $42.4 million total CECL reserve.
- Reconcile dividend sustainability against taxable income, cash generation, the $0.99 per-share Distributable Earnings figure and the $1.00 per-share declared common dividend.
- Check near-term debt maturities, lender renewal terms, margin-call exposure, covenant headroom and the funding plan for $403.6 million of unfunded commitments.
- Assess the economics and dilution implications of the preferred issuance, convertible notes due in 2022 and 2023, and post-year-end debt prepayment.
- Monitor the LIBOR-to-alternative-rate transition and any mismatch between loan and borrowing resets. Distributable Earnings is a non-GAAP measure and may not be comparable with similarly named measures from other companies.
The financial statements received an unqualified audit opinion; the auditor identified the allowance for credit losses as a critical audit matter. Management and the auditor reported effective internal control over financial reporting as of December 31, 2021.