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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended: June 30, 2019
OR
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| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-38124
GRANITE POINT MORTGAGE TRUST INC.
(Exact Name of Registrant as Specified in Its Charter)
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| | |
Maryland | | 61-1843143 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
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| | | |
3 Bryant Park, Suite 2400A | | |
New York, | New York | | 10036 |
(Address of Principal Executive Offices) | | (Zip Code) |
(212) 364-3200
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
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| | | | |
Title of Each Class: | | Trading Symbol(s) | | Name of Exchange on Which Registered: |
Common Stock, par value $0.01 per share | | GPMT | | New York Stock Exchange |
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.
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| | | |
Large accelerated filer | ☒ | 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 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 August 2, 2019, there were 54,853,205 shares of outstanding common stock, par value $0.01 per share, issued and outstanding.
GRANITE POINT MORTGAGE TRUST INC.
INDEX
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| PART I - FINANCIAL INFORMATION | |
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| PART II - OTHER INFORMATION | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
ASSETS | (unaudited) | | |
Loans held-for-investment | $ | 3,560,117 |
| | $ | 3,167,913 |
|
Available-for-sale securities, at fair value | 12,830 |
| | 12,606 |
|
Held-to-maturity securities | 22,020 |
| | 26,696 |
|
Cash and cash equivalents | 92,838 |
| | 91,700 |
|
Restricted cash | 76,149 |
| | 31,723 |
|
Accrued interest receivable | 9,924 |
| | 10,268 |
|
Deferred debt issuance costs | 6,099 |
| | 3,924 |
|
Prepaid expenses | 1,170 |
| | 1,055 |
|
Other assets | 23,189 |
| | 15,996 |
|
Total Assets (1) | $ | 3,804,336 |
| | $ | 3,361,881 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Liabilities | | | |
Repurchase agreements | $ | 1,254,027 |
| | $ | 1,500,543 |
|
Securitized debt obligations | 1,133,294 |
| | 654,263 |
|
Asset-specific financings | 75,060 |
| | — |
|
Revolving credit facilities | — |
| | 75,000 |
|
Convertible senior notes | 268,857 |
| | 268,138 |
|
Accrued interest payable | 6,204 |
| | 6,394 |
|
Unearned interest income | 584 |
| | 510 |
|
Dividends payable | 23,064 |
| | 18,346 |
|
Other liabilities | 14,510 |
| | 10,156 |
|
Total Liabilities (1) | 2,775,600 |
| | 2,533,350 |
|
10% cumulative redeemable preferred stock, par value $0.01 per share; 50,000,000 shares authorized and 1,000 and 1,000 shares issued and outstanding, respectively | 1,000 |
| | 1,000 |
|
Stockholders’ Equity | | | |
Common stock, par value $0.01 per share; 450,000,000 shares authorized and 54,853,205 and 43,621,174 shares issued and outstanding, respectively | 549 |
| | 436 |
|
Additional paid-in capital | 1,046,025 |
| | 836,288 |
|
Accumulated other comprehensive income (loss) | 32 |
| | (192 | ) |
Cumulative earnings | 127,008 |
| | 91,875 |
|
Cumulative distributions to stockholders | (145,878 | ) | | (100,876 | ) |
Total Stockholders’ Equity | 1,027,736 |
| | 827,531 |
|
Total Liabilities and Stockholders’ Equity | $ | 3,804,336 |
| | $ | 3,361,881 |
|
____________________
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(in thousands, except share data)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Interest income: |
| | |
Loans held-for-investment | $ | 58,133 |
| | $ | 42,359 |
| | $ | 114,798 |
| | $ | 81,152 |
|
Available-for-sale securities | 311 |
| | 285 |
| | 619 |
| | 557 |
|
Held-to-maturity securities | 613 |
| | 836 |
| | 1,274 |
| | 1,721 |
|
Cash and cash equivalents | 907 |
| | 29 |
| | 1,418 |
| | 56 |
|
Total interest income | 59,964 |
| | 43,509 |
| | 118,109 |
| | 83,486 |
|
Interest expense: | | | | | | | |
Repurchase agreements | 13,529 |
| | 14,934 |
| | 30,518 |
| | 31,128 |
|
Securitized debt obligations | 13,554 |
| | 3,875 |
| | 23,413 |
| | 3,875 |
|
Convertible senior notes | 4,491 |
| | 2,206 |
| | 8,956 |
| | 4,385 |
|
Asset-specific financings | 598 |
| | — |
| | 598 |
| | — |
|
Revolving credit facilities | 165 |
| | 220 |
| | 860 |
| | 220 |
|
Total interest expense | 32,337 |
| | 21,235 |
| | 64,345 |
| | 39,608 |
|
Net interest income | 27,627 |
| | 22,274 |
| | 53,764 |
| | 43,878 |
|
Other income: | | | | | | | |
Fee income | 202 |
| | 564 |
| | 1,115 |
| | 1,446 |
|
Total other income | 202 |
| | 564 |
| | 1,115 |
| | 1,446 |
|
Expenses: | | | | | | | |
Management fees | 3,763 |
| | 3,114 |
| | 7,212 |
| | 6,323 |
|
Incentive fees | — |
| | — |
| | 244 |
| | — |
|
Servicing expenses | 885 |
| | 494 |
| | 1,658 |
| | 952 |
|
General and administrative expenses | 5,006 |
| | 4,005 |
| | 10,622 |
| | 8,237 |
|
Total expenses | 9,654 |
| | 7,613 |
| | 19,736 |
| | 15,512 |
|
Income before income taxes | 18,175 |
| | 15,225 |
| | 35,143 |
| | 29,812 |
|
Benefit from income taxes | (2 | ) | | (2 | ) | | (3 | ) | | (1 | ) |
Net income | 18,177 |
| | 15,227 |
| | 35,146 |
| | 29,813 |
|
Dividends on preferred stock | 25 |
| | 25 |
| | 50 |
| | 50 |
|
Net income attributable to common stockholders | $ | 18,152 |
| | $ | 15,202 |
| | $ | 35,096 |
| | $ | 29,763 |
|
Basic earnings per weighted average common share | $ | 0.34 |
| | $ | 0.35 |
| | $ | 0.68 |
| | $ | 0.69 |
|
Diluted earnings per weighted average common share | $ | 0.33 |
| | $ | 0.34 |
| | $ | 0.68 |
| | $ | 0.67 |
|
Dividends declared per common share | $ | 0.42 |
| | $ | 0.40 |
| | $ | 0.84 |
| | $ | 0.78 |
|
Weighted average number of shares of common stock outstanding: | | | | | | | |
Basic | 53,953,634 |
| | 43,446,963 |
| | 51,292,318 |
| | 43,410,796 |
|
Diluted | 67,624,395 |
| | 50,634,463 |
| | 51,292,318 |
| | 50,598,296 |
|
Comprehensive income: | | | | | | | |
Net income attributable to common stockholders | $ | 18,152 |
| | $ | 15,202 |
| | $ | 35,096 |
| | $ | 29,763 |
|
Other comprehensive income (loss), net of tax: | | | | | | | |
Unrealized gain (loss) on available-for-sale securities | 32 |
| | (16 | ) | | 224 |
| | — |
|
Other comprehensive income (loss) | 32 |
| | (16 | ) | | 224 |
| | — |
|
Comprehensive income attributable to common stockholders | $ | 18,184 |
| | $ | 15,186 |
| | $ | 35,320 |
| | $ | 29,763 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
(in thousands, except share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Cumulative Earnings | | Cumulative Distributions to Stockholders | | Total Stockholders’ Equity |
Balance, December 31, 2017 | 43,235,103 |
| | $ | 432 |
| | $ | 829,704 |
| | $ | — |
| | $ | 28,800 |
| | $ | (30,315 | ) | | $ | 828,621 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 14,586 |
| | — |
| | 14,586 |
|
Other comprehensive income before reclassifications | — |
| | — |
| | — |
| | 16 |
| | — |
| | — |
| | 16 |
|
Amounts reclassified from accumulated other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net other comprehensive income | — |
| | — |
| | — |
| | 16 |
| | — |
| | — |
| | 16 |
|
Common dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | (16,506 | ) | | (16,506 | ) |
Preferred dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | (25 | ) | | (25 | ) |
Non-cash equity award compensation | 201,956 |
| | 2 |
| | 662 |
| | — |
| | — |
| | — |
| | 664 |
|
Balance, March 31, 2018 | 43,437,059 |
| | 434 |
| | 830,366 |
| | 16 |
| | 43,386 |
| | (46,846 | ) | | 827,356 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 15,227 |
| | — |
| | 15,227 |
|
Other comprehensive loss before reclassifications | — |
| | — |
| | — |
| | (16 | ) | | — |
| | — |
| | (16 | ) |
Amounts reclassified from accumulated other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net other comprehensive loss | — |
| | — |
| | — |
| | (16 | ) | | — |
| | — |
| | (16 | ) |
Common dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | (17,383 | ) | | (17,383 | ) |
Preferred dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | (25 | ) | | (25 | ) |
Non-cash equity award compensation | 19,175 |
| | 1 |
| | 1,202 |
| | — |
| | — |
| | — |
| | 1,203 |
|
Balance, June 30, 2018 | 43,456,234 |
| | $ | 435 |
| | $ | 831,568 |
| | $ | — |
| | $ | 58,613 |
| | $ | (64,254 | ) | | $ | 826,362 |
|
| | | | | | | | | | | | | |
Balance, December 31, 2018 | 43,621,174 |
| | $ | 436 |
| | $ | 836,288 |
| | $ | (192 | ) | | $ | 91,875 |
| | $ | (100,876 | ) | | $ | 827,531 |
|
Cumulative effect of adoption of new accounting principle | — |
| | — |
| | 13 |
| | — |
| | (13 | ) | | — |
| | — |
|
Adjusted balance, January 1, 2019 | 43,621,174 |
| | 436 |
| | 836,301 |
| | (192 | ) | | 91,862 |
| | (100,876 | ) | | 827,531 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 16,969 |
| | — |
| | 16,969 |
|
Other comprehensive income before reclassifications | — |
| | — |
| | — |
| | 192 |
| | — |
| | — |
| | 192 |
|
Amounts reclassified from accumulated other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net other comprehensive income | — |
| | — |
| | — |
| | 192 |
| | — |
| | — |
| | 192 |
|
Issuance of common stock, net of offering costs | 8,291,829 |
| | 83 |
| | 157,145 |
| | — |
| | — |
| | — |
| | 157,228 |
|
Common dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | (21,913 | ) | | (21,913 | ) |
Preferred dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | (25 | ) | | (25 | ) |
Non-cash equity award compensation | 258,918 |
| | 3 |
| | 1,146 |
| | — |
| | — |
| | — |
| | 1,149 |
|
Balance, March 31, 2019 | 52,171,921 |
| | 522 |
| | 994,592 |
| | — |
| | 108,831 |
| | (122,814 | ) | | 981,131 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 18,177 |
| | — |
| | 18,177 |
|
Other comprehensive income before reclassifications | — |
| | — |
| | — |
| | 32 |
| | — |
| | — |
| | 32 |
|
Amounts reclassified from accumulated other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net other comprehensive income | — |
| | — |
| | — |
| | 32 |
| | — |
| | — |
| | 32 |
|
Issuance of common stock, net of offering costs | 2,663,095 |
| | 27 |
| | 50,150 |
| | — |
| | — |
| | — |
| | 50,177 |
|
Common dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | (23,039 | ) | | (23,039 | ) |
Preferred dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | (25 | ) | | (25 | ) |
Non-cash equity award compensation | 18,189 |
| | — |
| | 1,283 |
| | — |
| | — |
| | — |
| | 1,283 |
|
Balance, June 30, 2019 | 54,853,205 |
| | $ | 549 |
| | $ | 1,046,025 |
| | $ | 32 |
| | $ | 127,008 |
| | $ | (145,878 | ) | | $ | 1,027,736 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
|
| | | | | | | |
| Six Months Ended |
| June 30, |
| 2019 | | 2018 |
Cash Flows From Operating Activities: | |
Net income | $ | 35,146 |
| | $ | 29,813 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Accretion of discounts and net deferred fees on loans held-for-investment | (7,943 | ) | | (5,893 | ) |
Amortization of deferred debt issuance costs on convertible senior notes and securitized debt obligations | 3,882 |
| | 1,102 |
|
Equity based compensation | 2,432 |
| | 1,867 |
|
Depreciation of fixed assets | 107 |
| | 3 |
|
Net change in assets and liabilities: | | | |
Decrease (increase) in accrued interest receivable | 344 |
| | (450 | ) |
(Increase) decrease in prepaid expenses | (115 | ) | | 143 |
|
Increase in other assets | (7,300 | ) | | (1,511 | ) |
(Decrease) increase in accrued interest payable | (190 | ) | | 161 |
|
Increase in unearned interest income | 74 |
| | 413 |
|
Increase in other liabilities | 4,354 |
| | 1,374 |
|
Net cash provided by operating activities | 30,791 |
| | 27,022 |
|
Cash Flows From Investing Activities: | | | |
Originations, acquisitions and additional fundings of loans held-for-investment, net of deferred fees | (687,998 | ) | | (594,126 | ) |
Proceeds from repayment of loans held-for-investment | 303,737 |
| | 420,679 |
|
Principal payments on held-to-maturity securities | 4,676 |
| | 8,510 |
|
Net cash used in investing activities | (379,585 | ) | | (164,937 | ) |
Cash Flows From Financing Activities: | | | |
Proceeds from repurchase agreements | 500,127 |
| | 561,357 |
|
Principal payments on repurchase agreements | (746,643 | ) | | (1,063,956 | ) |
Proceeds from issuance of securitized debt obligations | 646,868 |
| | 651,374 |
|
Principal payments on securitized debt obligations | (171,000 | ) | | — |
|
Proceeds from convertible senior notes | — |
| | 18,247 |
|
Proceeds from asset-specific financings | 75,060 |
| | — |
|
Proceeds from revolving credit facilities | 48,697 |
| | 49,394 |
|
Repayment of revolving credit facilities | (123,697 | ) | | (49,394 | ) |
(Increase) decrease in deferred debt issuance costs | (2,175 | ) | | 1,922 |
|
Proceeds from issuance of common stock, net of offering costs | 207,405 |
| | — |
|
Dividends paid on preferred stock | (50 | ) | | (50 | ) |
Dividends paid on common stock | (40,234 | ) | | (32,935 | ) |
Net cash provided by financing activities | 394,358 |
| | 135,959 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash | 45,564 |
| | (1,956 | ) |
Cash, cash equivalents and restricted cash at beginning of period | 123,423 |
| | 110,718 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 168,987 |
| | $ | 108,762 |
|
Supplemental Disclosure of Cash Flow Information: | | | |
Cash paid for interest | $ | 64,534 |
| | $ | 39,447 |
|
Cash paid (received) for taxes, net | $ | — |
| | $ | (5 | ) |
Noncash Activities: | | | |
Dividends declared but not paid at end of period | $ | 23,064 |
| | $ | 17,408 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 1. Organization and Operations
Granite Point Mortgage Trust Inc., or the Company, is a Maryland corporation 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. The Company is externally managed by Pine River Capital Management L.P., or the Manager. The Company’s common stock is listed on the New York Stock Exchange, or NYSE, under the symbol “GPMT”.
The Company was incorporated on April 7, 2017 and commenced operations as a publicly traded company on June 28, 2017, upon completion of an initial public offering, or the IPO. Concurrently with the closing of the IPO, the Company completed a formation transaction, or the Formation Transaction, pursuant to which the Company acquired the equity interests in TH Commercial Holdings LLC, or the Predecessor, from Two Harbors Investment Corp., or Two Harbors, a publicly traded hybrid mortgage real estate investment trust (NYSE: TWO). In exchange, the Company issued 33,071,000 shares of its common stock, representing approximately 76.5% of its outstanding common stock after the IPO, and 1,000 shares of its 10% cumulative redeemable preferred stock to Two Harbors. Upon the completion of the Formation Transaction, the Predecessor became the Company’s wholly owned indirect subsidiary. On November 1, 2017, Two Harbors distributed to its common stockholders the 33,071,000 shares of the Company’s common stock it had acquired in connection with the Formation Transaction, allowing the Company’s market capitalization to be fully floating.
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 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, 2018. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at June 30, 2019 and results of operations for all periods presented have been made. The results of operations for the three and six months ended June 30, 2019 should not be construed as indicative of the results to be expected for future periods or the full year.
The 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 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 U.S. GAAP requires management to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amount and timing of allowances for loan losses and impairments 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 capitalization rates, leasing, credit worthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders, overall economic conditions, the broader commercial real estate market, local geographic sub-markets or other factors) will occur in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ from its estimates and the differences may be material.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
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, 2018 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 consolidated financial condition and results of operations for the three and six months ended June 30, 2019.
Asset-Specific Financings
The Company finances certain of its loans held-for-investment through the use of an asset-specific financing facility. Borrowings under the asset-specific financing facility generally bear interest rates of a specified margin over one-month LIBOR. The asset-specific financings are treated as collateralized financing transactions and are carried at their contractual amounts, as specified in the respective agreements.
Recently Issued and/or Adopted Accounting Standards
Lease Classification and Accounting
In February 2016, the FASB issued ASU No. 2016-02, which requires lessees to recognize on their balance sheets both a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. The Company’s adoption of this ASU did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU No. 2016-13, which changes the impairment model for most financial assets and certain other instruments. Allowances for credit losses on available-for-sale, or AFS, and held-to-maturity, or HTM, debt securities will be recognized, rather than direct reductions in the amortized cost of the investments. The new model also requires the estimation of lifetime expected credit losses and corresponding recognition of allowance for losses on trade and other receivables, HTM debt securities, loans, and other instruments held at amortized cost. The ASU requires certain recurring disclosures and is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2019, with early adoption permitted for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018. The Company is evaluating the adoption of this ASU to determine the impact it may have on its condensed consolidated financial statements, which at the date of adoption, is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings.
Accounting for Share-Based Payments to Nonemployees
In June 2018, the FASB issued ASU No. 2018-07 to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Under the guidance, equity-classified nonemployee awards will be measured on and fixed at the grant date, rather than measured at fair value at each reporting date until the date at which the nonemployee’s performance is complete. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. The Company’s adoption of this ASU was applied by recording a cumulative-effect adjustment to retained earnings as of January 1, 2019, which did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.
SEC Disclosure Update and Simplification
In August 2018, the SEC adopted a final rule that amends certain disclosure requirements that have become duplicative, overlapping, or outdated in light of other SEC disclosure requirements, U.S. GAAP, or changes in the information environment. However, the guidance also added requirements for entities to include in their interim financial statements a reconciliation of changes in stockholders’ equity for each period for which an income statement is required (both year-to-date and quarterly periods). The final rule is effective for all filings made on or after November 5, 2018. However, the SEC staff said it would not object to a registrant waiting to comply with the new interim disclosure requirement until the filing of its Form 10-Q for the quarter that begins after the effective date. As a result, the Company adopted the new interim disclosure requirement in connection with the Form 10-Q filing for the first quarter of 2019. The Company’s adoption of this final rule did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 3. Variable Interest Entities
The Company finances pools of its commercial real estate loans through collateralized loan obligations, or CLOs, which are considered VIEs for financial reporting purposes and, thus, are reviewed for consolidation under the applicable consolidation guidance. Because the Company has both the power to direct the activities of the CLOs that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant, the Company consolidates the CLOs.
The following table presents a summary of the assets and liabilities of all variable interest entities consolidated on the Company’s condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018:
|
| | | | | | | |
(in thousands) | June 30, 2019 | | December 31, 2018 |
Loans held-for-investment | $ | 1,402,209 |
| | $ | 795,259 |
|
Restricted cash | 69,478 |
| | 26,136 |
|
Accrued interest receivable | 4,039 |
| | 2,622 |
|
Other assets | 6,566 |
| | 5,130 |
|
Total Assets | $ | 1,482,292 |
| | $ | 829,147 |
|
Securitized debt obligations | $ | 1,133,294 |
| | $ | 654,263 |
|
Accrued interest payable | 1,122 |
| | 689 |
|
Other liabilities | 77 |
| | — |
|
Total Liabilities | $ | 1,134,493 |
| | $ | 654,952 |
|
The Company is not required to consolidate VIEs for which it has concluded it does not have both the power to direct the activities of the VIEs that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant. The Company’s investments in these unconsolidated VIEs include CMBS, which are classified within available-for-sale securities, at fair value, and held-to-maturity securities on the condensed consolidated balance sheets. As of June 30, 2019 and December 31, 2018, the carrying value, which also represents the maximum exposure to loss, of all CMBS in unconsolidated VIEs was $34.8 million and $39.3 million, respectively.
Note 4. Loans Held-for-Investment
The Company originates and acquires commercial real estate debt and related instruments generally to be held as long-term investments. These assets are classified as loans held-for-investment on the condensed consolidated balance sheets. Interest income on loans held-for-investment is recognized at the loan coupon rate. Any premiums or discounts, loan fees,
contractual exit fees and origination costs are amortized or accreted into interest income over the lives of the loans using the
effective interest method. Loans are considered past due when they are 30 days past their contractual due date. Interest income
recognition is suspended when loans are placed on nonaccrual status. Generally, commercial mortgage loans are placed on
nonaccrual status when delinquent for more than 90 days or when determined not to be probable of full collection. Interest
accrued, but not collected, at the date loans are placed on nonaccrual is reversed and subsequently recognized only to the extent
it is received in cash or until it qualifies for return to accrual status. However, where there is doubt regarding the ultimate
collectability of loan principal, all cash received is applied to reduce the carrying value of such loans. Commercial mortgage
loans are restored to accrual status only when contractually current or the collection of future payments is reasonably assured.
The Company also finances pools of its commercial real estate loans through CLOs, which are considered to be VIEs for financial reporting purposes and, thus, are reviewed for consolidation under the applicable consolidation guidance. Because the Company has both the power to direct the activities of the CLOs that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant, the Company consolidates the CLOs and classifies the underlying loans as loans held-for-investment. Loans held-for-investment are reported at cost, net of any unamortized acquisition premiums or discounts, loan fees and origination costs as applicable.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
The following tables summarize the Company’s loans held-for-investment by asset type, property type and geographic location as of June 30, 2019 and December 31, 2018:
|
| | | | | | | | | | | | | | | |
| June 30, 2019 |
(dollars in thousands) | Senior Loans (1) | | Mezzanine Loans | | B-Notes | | Total |
Unpaid principal balance | $ | 3,556,949 |
| | $ | 14,095 |
| | $ | 14,551 |
| | $ | 3,585,595 |
|
Unamortized (discount) premium | (131 | ) | | — |
| | — |
| | (131 | ) |
Unamortized net deferred origination fees | (25,347 | ) | | — |
| | — |
| | (25,347 | ) |
Carrying value | $ | 3,531,471 |
| | $ | 14,095 |
| | $ | 14,551 |
| | $ | 3,560,117 |
|
Unfunded commitments | $ | 588,697 |
| | $ | — |
| | $ | — |
| | $ | 588,697 |
|
Number of loans | 103 |
| | 2 |
| | 1 |
| | 106 |
|
Weighted average coupon | 6.2 | % | | 12.0 | % | | 8.0 | % | | 6.2 | % |
Weighted average years to maturity (2) | 1.8 |
| | 2.7 |
| | 7.6 |
| | 1.8 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
(dollars in thousands) | Senior Loans (1) | | Mezzanine Loans | | B-Notes | | Total |
Unpaid principal balance | $ | 3,147,310 |
| | $ | 31,679 |
| | $ | 14,652 |
| | $ | 3,193,641 |
|
Unamortized (discount) premium | (151 | ) | | — |
| | — |
| | (151 | ) |
Unamortized net deferred origination fees | (25,577 | ) | | — |
| | — |
| | (25,577 | ) |
Carrying value | $ | 3,121,582 |
| | $ | 31,679 |
| | $ | 14,652 |
| | $ | 3,167,913 |
|
Unfunded commitments | $ | 626,155 |
| | $ | — |
| | $ | — |
| | $ | 626,155 |
|
Number of loans | 88 |
| | 3 |
| | 1 |
| | 92 |
|
Weighted average coupon | 6.4 | % | | 11.4 | % | | 8.0 | % | | 6.5 | % |
Weighted average years to maturity (2) | 2.0 |
| | 1.9 |
| | 8.1 |
| | 2.0 |
|
____________________
| |
(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 loan modifications. |
|
| | | | | | | | | | | | | | |
(dollars in thousands) | | June 30, 2019 | | December 31, 2018 |
Property Type | | Carrying Value | | % of Loan Portfolio | | Carrying Value | | % of Loan Portfolio |
Office | | $ | 1,519,351 |
| | 42.7 | % | | $ | 1,495,128 |
| | 47.2 | % |
Multifamily | | 806,553 |
| | 22.7 | % | | 569,259 |
| | 18.0 | % |
Hotel | | 566,259 |
| | 15.9 | % | | 427,611 |
| | 13.5 | % |
Retail | | 369,869 |
| | 10.4 | % | | 324,447 |
| | 10.2 | % |
Industrial | | 264,356 |
| | 7.4 | % | | 351,468 |
| | 11.1 | % |
Other | | 33,729 |
| | 0.9 | % | | — |
| | — | % |
Total | | $ | 3,560,117 |
| | 100.0 | % | | $ | 3,167,913 |
| | 100.0 | % |
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
|
| | | | | | | | | | | | | | |
(dollars in thousands) | | June 30, 2019 | | December 31, 2018 |
Geographic Location | | Carrying Value | | % of Loan Portfolio | | Carrying Value | | % of Loan Portfolio |
Northeast | | $ | 1,141,476 |
| | 32.1 | % | | $ | 1,171,691 |
| | 37.0 | % |
Southwest | | 881,363 |
| | 24.8 | % | | 681,108 |
| | 21.5 | % |
West | | 703,512 |
| | 19.8 | % | | 694,223 |
| | 21.9 | % |
Southeast | | 437,898 |
| | 12.2 | % | | 369,961 |
| | 11.7 | % |
Midwest | | 395,868 |
| | 11.1 | % | | 250,930 |
| | 7.9 | % |
Total | | $ | 3,560,117 |
| | 100.0 | % | | $ | 3,167,913 |
| | 100.0 | % |
At June 30, 2019 and December 31, 2018, the Company pledged loans held-for-investment with a carrying value of $3.2 billion and $2.9 billion, respectively, as collateral for repurchase agreements, asset-specific financings, revolving credit facilities and securitized debt obligations. See Note 10 - Repurchase Agreements, Note 11 - Asset-specific Financings, Note 12 - Revolving Credit Facilities and Note 13 - Securitized Debt Obligations.
The following table summarizes activity related to loans held-for-investment for the three and six months ended June 30, 2019 and 2018.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Balance at beginning of period | $ | 3,292,989 |
| | $ | 2,364,647 |
| | $ | 3,167,913 |
| | $ | 2,304,266 |
|
Originations, acquisitions and additional fundings | 415,997 |
| | 445,944 |
| | 695,691 |
| | 602,130 |
|
Repayments | (148,417 | ) | | (324,252 | ) | | (303,737 | ) | | (420,679 | ) |
Net discount accretion (premium amortization) | 7 |
| | 4 |
| | 20 |
| | 18 |
|
Increase in net deferred origination fees | (4,573 | ) | | (5,919 | ) | | (7,693 | ) | | (8,004 | ) |
Amortization of net deferred origination fees | 4,114 |
| | 3,182 |
| | 7,923 |
| | 5,875 |
|
Allowance for loan losses | — |
| | — |
| | — |
| | — |
|
Balance at end of period | $ | 3,560,117 |
| | $ | 2,483,606 |
| | $ | 3,560,117 |
| | $ | 2,483,606 |
|
The Company evaluates each loan for impairment at least quarterly by assessing the risk factors of each loan and assigning a risk rating based on a variety of factors. Risk factors include property type, geographic and local market dynamics, physical condition, leasing and tenant profile, projected cash flow, loan structure and exit plan, loan-to-value ratio, project sponsorship, and other factors deemed necessary. Risk ratings are defined as follows:
| |
4 – | Higher Risk: A loan that has exhibited material deterioration in cash flows and/or other credit factors, which, if negative trends continue, could be indicative of future loss. |
| |
5 – | Impaired/Loss Likely: A loan that has a significantly increased probability of default or principal loss. |
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
The following table presents the number of loans, unpaid principal balance and carrying value (amortized cost) by risk rating for loans held-for-investment as of June 30, 2019 and December 31, 2018:
|
| | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | | June 30, 2019 | | December 31, 2018 |
Risk Rating | | Number of Loans | | Unpaid Principal Balance | | Carrying Value | | Number of Loans | | Unpaid Principal Balance | | Carrying Value |
1 | | 9 |
| | $ | 377,008 |
| | $ | 375,737 |
| | 9 |
| | $ | 354,791 |
| | $ | 353,583 |
|
2 | | 89 |
| | 3,013,703 |
| | 2,990,794 |
| | 78 |
| | 2,680,297 |
| | 2,656,679 |
|
3 | | 6 |
| | 157,465 |
| | 156,348 |
| | 3 |
| | 121,133 |
| | 120,496 |
|
4 | | 2 |
| | 37,419 |
| | 37,238 |
| | 2 |
| | 37,420 |
| | 37,155 |
|
5 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | | 106 |
| | $ | 3,585,595 |
| | $ | 3,560,117 |
| | 92 |
| | $ | 3,193,641 |
| | $ | 3,167,913 |
|
The Company has not identified any impaired loans and it has not recorded any allowances for losses as it is not deemed probable that the Company will not be able to collect all amounts due pursuant to the contractual terms of the loans.
Note 5. Available-for-Sale Securities
The following table presents the face value and carrying value (which approximates fair value) of AFS securities as of June 30, 2019 and December 31, 2018:
|
| | | | | | | |
(in thousands) | June 30, 2019 | | December 31, 2018 |
Face value | $ | 12,798 |
| | $ | 12,798 |
|
Gross unrealized gains | 32 |
| | — |
|
Gross unrealized losses | — |
| | (192 | ) |
Carrying value | $ | 12,830 |
| | $ | 12,606 |
|
On June 30, 2019, the Company’s AFS securities had contractual maturities of less than one year.
At June 30, 2019 and December 31, 2018, the Company pledged AFS securities with a carrying value of $12.8 million and $12.6 million, respectively, as collateral for repurchase agreements. See Note 10 - Repurchase Agreements.
At June 30, 2019, the Company’s AFS securities were in a unrealized gain position. At December 31, 2018, the Company’s AFS securities were in an unrealized loss position for less than twelve months.
Evaluating AFS Securities for Other-Than-Temporary Impairments
In evaluating AFS securities for other-than-temporary impairments, or OTTI, the Company determines whether there has been a significant adverse quarterly change in the cash flow expectations for a security. The Company compares the amortized cost of each security in an unrealized loss position against the present value of expected future cash flows of the security. The Company also considers whether there has been a significant adverse change in the regulatory and/or economic environment as part of this analysis. If the amortized cost of the security is greater than the present value of expected future cash flows using the original yield as the discount rate, an other-than-temporary credit impairment has occurred. If the Company does not intend to sell and will not be more likely than not required to sell the security, the credit loss is recognized in earnings and the balance of the unrealized loss is recognized in other comprehensive income (loss). If the Company intends to sell the security or will be more likely than not required to sell the security, the full unrealized loss is recognized in earnings. The Company did not record any other-than-temporary credit impairments during the three and six months ended June 30, 2019 and 2018 as expected cash flows were greater than amortized cost for all AFS securities held.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 6. Held-to-Maturity Securities
The following table presents the face value and carrying value of HTM securities by collateral type as of June 30, 2019 and December 31, 2018: