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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, 2020
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
GRANITE POINT MORTGAGE TRUST INC.
(Exact name of registrant as specified in its charter)
|
| | |
Maryland | | 61-1843143 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
|
| | | |
3 Bryant Park, Suite 2400A | | |
New York, | New York | | 10036 |
(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 |
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.
|
| | | | |
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 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 8, 2020, there were 55,136,885 shares of outstanding common stock, par value $0.01 per share, issued and outstanding.
GRANITE POINT MORTGAGE TRUST INC.
INDEX
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| | |
| | Page |
| PART I - FINANCIAL INFORMATION | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| PART II - OTHER INFORMATION | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
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, 2020 | | December 31, 2019 |
ASSETS | | | |
Loans held-for-investment | $ | 4,313,816 |
| | $ | 4,226,212 |
|
Allowance for credit losses | (62,565 | ) | | — |
|
Loans held-for-investment, net | 4,251,251 |
| | 4,226,212 |
|
Available-for-sale securities, at fair value | 8,319 |
| | 12,830 |
|
Held-to-maturity securities | 10,836 |
| | 18,076 |
|
Cash and cash equivalents | 99,332 |
| | 80,281 |
|
Restricted cash | 8,533 |
| | 79,483 |
|
Accrued interest receivable | 11,215 |
| | 11,323 |
|
Other assets | 87,392 |
| | 32,657 |
|
Total Assets (1) | $ | 4,476,878 |
| | $ | 4,460,862 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Liabilities | | | |
Repurchase agreements | $ | 2,072,099 |
| | $ | 1,924,021 |
|
Securitized debt obligations | 982,312 |
| | 1,041,044 |
|
Asset-specific financings | 119,062 |
| | 116,465 |
|
Revolving credit facilities | 38,361 |
| | 42,008 |
|
Convertible senior notes | 270,031 |
| | 269,634 |
|
Dividends payable | 25 |
| | 23,063 |
|
Other liabilities | 32,929 |
| | 24,491 |
|
Total Liabilities (1) | 3,514,819 |
| | 3,440,726 |
|
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 55,136,885 and 54,853,205 shares issued and outstanding, respectively | 552 |
| | 549 |
|
Additional paid-in capital | 1,049,836 |
| | 1,048,484 |
|
Accumulated other comprehensive (loss) income | (3,712 | ) | | 32 |
|
Cumulative earnings | 106,413 |
| | 162,076 |
|
Cumulative distributions to stockholders | (192,030 | ) | | (192,005 | ) |
Total Stockholders’ Equity | 961,059 |
| | 1,019,136 |
|
Total Liabilities and Stockholders’ Equity | $ | 4,476,878 |
| | $ | 4,460,862 |
|
____________________
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands, except share data)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2020 | | 2019 |
Interest income: |
|
Loans held-for-investment | $ | 63,259 |
| | $ | 56,665 |
|
Available-for-sale securities | 280 |
| | 308 |
|
Held-to-maturity securities | 310 |
| | 661 |
|
Cash and cash equivalents | 326 |
| | 511 |
|
Total interest income | 64,175 |
| | 58,145 |
|
Interest expense: | | | |
Repurchase agreements | 19,675 |
| | 16,989 |
|
Securitized debt obligations | 9,434 |
| | 9,859 |
|
Convertible senior notes | 4,516 |
| | 4,465 |
|
Asset-specific financings | 1,122 |
| | — |
|
Revolving credit facilities | 242 |
| | 695 |
|
Total interest expense | 34,989 |
| | 32,008 |
|
Net interest income | 29,186 |
| | 26,137 |
|
Other (loss) income: | | | |
Provision for credit losses | (53,336 | ) | | — |
|
Fee income | 522 |
| | 913 |
|
Total other (loss) income | (52,814 | ) | | 913 |
|
Expenses: | | | |
Management fees | 3,907 |
| | 3,449 |
|
Incentive fees | — |
| | 244 |
|
Servicing expenses | 1,109 |
| | 773 |
|
Other operating expenses | 8,553 |
| | 5,616 |
|
Total expenses | 13,569 |
| | 10,082 |
|
(Loss) income before income taxes | (37,197 | ) | | 16,968 |
|
Benefit from income taxes | (6 | ) | | (1 | ) |
Net (loss) income | (37,191 | ) | | 16,969 |
|
Dividends on preferred stock | 25 |
| | 25 |
|
Net (loss) income attributable to common stockholders | $ | (37,216 | ) | | $ | 16,944 |
|
Basic (loss) earnings per weighted average common share | $ | (0.68 | ) | | $ | 0.35 |
|
Diluted (loss) earnings per weighted average common share | $ | (0.68 | ) | | $ | 0.34 |
|
Dividends declared per common share | $ | — |
| | $ | 0.42 |
|
Weighted average number of shares of common stock outstanding: | | | |
Basic | 55,056,411 |
| | 48,601,431 |
|
Diluted | 55,056,411 |
| | 62,256,595 |
|
Comprehensive (loss) income: | | | |
Net (loss) income attributable to common stockholders | $ | (37,216 | ) | | $ | 16,944 |
|
Other comprehensive (loss) income, net of tax: | | | |
Unrealized (loss) gain on available-for-sale securities | (3,744 | ) | | 192 |
|
Other comprehensive (loss) income | (3,744 | ) | | 192 |
|
Comprehensive (loss) income attributable to common stockholders | $ | (40,960 | ) | | $ | 17,136 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-in Capital | | Accumulated Other Comprehensive (Loss) Income | | Cumulative Earnings | | Cumulative Distributions to Stockholders | | Total Stockholders’ Equity |
| | | | | | | | | | | | | |
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 |
|
| | | | | | | | | | | | | |
Balance, December 31, 2019 | 54,853,205 |
| | $ | 549 |
| | $ | 1,048,484 |
| | $ | 32 |
| | $ | 162,076 |
| | $ | (192,005 | ) | | $ | 1,019,136 |
|
Cumulative effect of adoption of new accounting principle | — |
| | — |
| | — |
| | — |
| | (18,472 | ) | | — |
| | (18,472 | ) |
Adjusted balance, January 1, 2020 | 54,853,205 |
| | 549 |
| | 1,048,484 |
| | 32 |
| | 143,604 |
| | (192,005 | ) | | 1,000,664 |
|
Net loss | — |
| | — |
| | — |
| | — |
| | (37,191 | ) | | — |
| | (37,191 | ) |
Other comprehensive loss before reclassifications | — |
| | — |
| | — |
| | (4,511 | ) | | — |
| | — |
| | (4,511 | ) |
Amounts reclassified from accumulated other comprehensive income | — |
| | — |
| | — |
| | 767 |
| | — |
| | — |
| | 767 |
|
Net other comprehensive loss | — |
| | — |
| | — |
| | (3,744 | ) | | — |
| | — |
| | (3,744 | ) |
Preferred dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | (25 | ) | | (25 | ) |
Non-cash equity award compensation | 283,680 |
| | 3 |
| | 1,352 |
| | — |
| | — |
| | — |
| | 1,355 |
|
Balance, March 31, 2020 | 55,136,885 |
| | $ | 552 |
| | $ | 1,049,836 |
| | $ | (3,712 | ) | | $ | 106,413 |
| | $ | (192,030 | ) | | $ | 961,059 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) |
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2020 | | 2019 |
Cash Flows From Operating Activities: | |
Net (loss) income | $ | (37,191 | ) | | $ | 16,969 |
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | | | |
Accretion of discounts and net deferred fees on loans held-for-investment | (4,774 | ) | | (3,822 | ) |
Amortization of deferred debt issuance costs on convertible senior notes and securitized debt obligations | 1,665 |
| | 2,029 |
|
Provision for credit losses | 53,336 |
| | — |
|
Equity based compensation | 1,355 |
| | 1,149 |
|
Net change in assets and liabilities: | | | |
Decrease (increase) in accrued interest receivable | 108 |
| | (327 | ) |
Increase in other assets | (54,735 | ) | | (3,781 | ) |
Increase in other liabilities | 904 |
| | 6,327 |
|
Net cash (used in) provided by operating activities | (39,332 | ) | | 18,544 |
|
Cash Flows From Investing Activities: | | | |
Originations, acquisitions and additional fundings of loans held-for-investment, net of deferred fees | (184,969 | ) | | (276,574 | ) |
Proceeds from repayment of loans held-for-investment | 102,139 |
| | 155,320 |
|
Principal payments on held-to-maturity securities | 6,298 |
| | 881 |
|
Net cash used in investing activities | (76,532 | ) | | (120,373 | ) |
Cash Flows From Financing Activities: | | | |
Proceeds from repurchase agreements | 237,344 |
| | 225,261 |
|
Principal payments on repurchase agreements | (89,266 | ) | | (732,170 | ) |
Proceeds from issuance of securitized debt obligations | — |
| | 646,868 |
|
Principal payments on securitized debt obligations | (60,000 | ) | | (105,000 | ) |
Proceeds from asset-specific financings | 2,597 |
| | — |
|
Proceeds from revolving credit facilities | 38,361 |
| | 48,697 |
|
Repayment of revolving credit facilities | (42,008 | ) | | (123,697 | ) |
Proceeds from issuance of common stock, net of offering costs | — |
| | 157,228 |
|
Dividends paid on preferred stock | (25 | ) | | (25 | ) |
Dividends paid on common stock | (23,038 | ) | | (18,321 | ) |
Net cash provided by financing activities | 63,965 |
| | 98,841 |
|
Net decrease in cash, cash equivalents and restricted cash | (51,899 | ) | | (2,988 | ) |
Cash, cash equivalents, and restricted cash at beginning of period | 159,764 |
| | 123,423 |
|
Cash, cash equivalents, and restricted cash at end of period | $ | 107,865 |
| | $ | 120,435 |
|
Supplemental Disclosure of Cash Flow Information: | | | |
Cash paid for interest | $ | 31,914 |
| | $ | 28,284 |
|
Cash paid for taxes | $ | — |
| | $ | — |
|
Noncash Activities: | | | |
Dividends declared but not paid at end of period | $ | 25 |
| | $ | 21,938 |
|
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
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 currently 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.”
On March 2, 2020, the Company announced that it has agreed to a process with the Manager to internalize the Company’s management function. If the internalization is completed, the Company will become a self-managed real estate investment trust, or REIT. There can be no assurance that the internalization will be consummated.
The Company has elected to be treated as a 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 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, 2019. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at March 31, 2020 and results of operations for all periods presented have been made. The results of operations for the three months ended March 31, 2020 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 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 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. Over the course of the first quarter of 2020, a global outbreak of a novel strain of coronavirus (COVID-19), took place. The outbreak has spread around the world, including to every state in the United States. As a result of the pandemic, numerous countries, including the United States, have declared national emergencies. As the global impact of the outbreak has been rapidly evolving and as new cases of COVID-19 have quickly spread around the world, many countries, including the U.S., have reacted by instituting quarantines, restrictions on travel, and temporarily closing non-essential businesses. Many states in the U.S. instituted varying degrees of “shelter-in-place” guidelines or orders and other measures designed to contain the spread of COVID-19. Such actions are creating significant macroeconomic disruptions and adversely impacting many industries. The outbreak could have a continued adverse impact on macroeconomic and market conditions, and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on macroeconomic and market conditions. The Company believes the estimates and assumptions underlying
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
its consolidated financial statements are reasonable and supportable based on the information available as of March 31, 2020. However, the significant degree of uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of March 31, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19. The Company’s actual results could ultimately differ from its estimates and the differences may be material.
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, 2019 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 months ended March 31, 2020.
Recently Issued and/or Adopted Accounting Standards
Measurement of Credit Losses on Financial Instruments
On January 1, 2020, the Company adopted Accounting Standard Update, or ASU, 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. ASU 2016-13 significantly changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the incurred loss model under existing guidance with a Current Expected Credit Loss, or CECL, model for instruments measured at amortized cost, and also require entities to record allowances for available-for-sale, or AFS, debt securities rather than reduce the amortized cost, as they did under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. In addition, the new model applies to off-balance sheet credit exposures, such as unfunded loan commitments. ASU 2016-13 was adopted by the Company through a cumulative-effect adjustment to cumulative earnings of $18.5 million as of January 1, 2020.
The allowance for credit losses required under ASU 2016-13 is a valuation account that is deducted from the amortized cost basis of related loans and debt securities on the Company’s condensed consolidated balance sheets, and which reduces the Company’s total stockholders’ equity. The initial allowance for credit losses recorded on January 1, 2020 is reflected as a direct charge to cumulative earnings; however, going forward, changes to the allowance for credit losses are recognized through net income on the Company’s condensed consolidated statements of comprehensive (loss) income. While ASU 2016-13 does not require any particular method for determining the allowance for credit losses, it does specify the allowance should be based on relevant information about past events, including historical loss experience, current portfolio, market conditions, and reasonable and supportable forecasts for the duration of each respective loan. In addition, other than a few narrow exceptions, ASU 2016-13 requires that all financial instruments subject to the CECL model have some amount of expected loss to reflect the GAAP principal underlying the CECL model that all loans, debt securities, and similar assets have some inherent risk of loss, regardless of credit quality, subordinate capital or other mitigating factors.
The Company’s loans typically include commitments to fund incremental proceeds to its borrowers over the life of the loan. Those future funding commitments are also subject to an allowance for credit losses. The allowance for credit losses related to future loan fundings is recorded as a component of other liabilities on the Company’s condensed consolidated balance sheets, and not as an offset to the related loan balance. This allowance for credit losses is estimated using the same process outlined below for the Company’s outstanding loan balances, and changes in this component of the allowance for credit losses similarly flow through the Company’s condensed consolidated statement of comprehensive (loss) income.
The Company elected not to measure an allowance for credit losses on accrued interest receivable. The Company generally writes off accrued interest receivable balance when interest is 90 days or more past due unless the loan is both well secured and in the process of collection. Write-offs of accrued interest receivable are recognized within provision for credit losses in the condensed consolidated statements of comprehensive income. The Company did not write-off any accrued interest receivable during the three months ended March 31, 2020.
The Company’s implementation process included a selection of a credit loss analytical model, completion and documentation of policies and procedures, changes to internal reporting processes and related internal controls and additional disclosures. A control framework for governance, data, forecast, and model controls was developed to support the CECL process. Estimating an allowance for credit losses requires significant judgment and a variety of subjective assumptions, including (i) determination of relevant historical loan loss data sets, (ii) the expected timing and amount of future loan fundings and repayments, (iii) the current credit quality of loans and operating performance of loan collateral and the Company’s expectations of performance and (iv) expectations for macroeconomic conditions over the relevant time period.
Considering the lack of historical company data related to any realized loan losses since its inception, the Company elected to estimate its allowance for credit losses by using a probability-weighted analytical model that considers the likelihood of default and loss-given-default for each individual loan. The analytical model incorporates a third-party licensed database with historical
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
loan losses from 1998 to 2019 for over 100,000 commercial real estate loans. At the time of adoption of ASU No. 2016-13, in determining its initial allowance for credit losses estimate, the Company employed a third-party licensed macroeconomic forecast that largely reflected management’s views at the time and projected a stable overall economic scenario over the reasonable projection period. Significant inputs to the Company’s estimate of the allowance for credit losses include the reasonable and supportable forecast period and loan specific factors such as DSCR, LTV, remaining loan term, property type, and others. In addition, the Company also considers relevant loan-specific qualitative factors to estimate its allowance for credit losses. In certain instances, for loans with unique risk characteristics, the Company may instead elect to employ different methods to estimate loan losses that also conform to ASU 2016-13 and related guidance.
Upon adoption of ASU No. 2016-13 on January 1, 2020, based on the Company’s loan portfolio, pre-COVID-19 economic environment and management’s expectations for future economic and market conditions at the time, the Company recorded an initial allowance for credit losses, as a cumulative-effective adjustment to the cumulative earnings in its consolidated statement of equity, of approximately $18.5 million, or approximately $0.34 per share.
The following table illustrates the day-one financial statement impact of the adoption of ASU 2016-13 on January 1, 2020:
|
| | | | | | | | | | | |
(in thousands) |
ASSETS | Pre-ASU 2016-13 Adoption | | Cumulative Effect of Adoption | | As Reported Under ASU 2016-13 |
Loans and securities | $ | 4,257,086 |
| | $ | — |
| | $ | 4,257,086 |
|
Allowance for credit losses | — |
| | (16,692 | ) | | (16,692 | ) |
Loans and securities, net | $ | 4,257,086 |
| | $ | (16,692 | ) | | $ | 4,240,394 |
|
| | | | | |
LIABILITIES | | | | | |
Liability for off-balance sheet credit losses (1) | $ | — |
| | $ | 1,780 |
| | $ | 1,780 |
|
|
| |
| |
|
STOCKHOLDERS’ EQUITY | | | | | |
Cumulative earnings | $ | 162,076 |
| | $ | (18,472 | ) | | $ | 143,604 |
|
____________________
| |
(1) | Represents expected loss on unfunded commitments. |
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. 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, therefore, the Company consolidates the CLOs.
The following table presents a summary of the assets and liabilities of all VIEs consolidated on the Company’s condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019:
|
| | | | | | | |
(in thousands) | March 31, 2020 | | December 31, 2019 |
Loans held-for-investment | $ | 1,317,406 |
| | $ | 1,301,369 |
|
Allowance for credit losses | (16,067 | ) | | — |
|
Loans held-for-investment, net | 1,301,339 |
| | 1,301,369 |
|
Restricted cash | 900 |
| | 76,093 |
|
Other assets | 8,648 |
| | 9,686 |
|
Total Assets | $ | 1,310,887 |
| | $ | 1,387,148 |
|
Securitized debt obligations | $ | 982,312 |
| | $ | 1,041,044 |
|
Other liabilities | 782 |
| | 1,078 |
|
Total Liabilities | $ | 983,094 |
| | $ | 1,042,122 |
|
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
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 commercial mortgage-backed securities, or CMBS, which are classified within AFS securities, at fair value, and held-to-maturity, or HTM, securities on the condensed consolidated balance sheets. As of March 31, 2020 and December 31, 2019, the carrying value, which also represents the maximum exposure to loss, of all CMBS in unconsolidated VIEs was $19.2 million and $30.9 million, respectively.
Note 4. Loans Held-for-Investment, Net of Allowance for Credit Losses
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. Loans held-for-investment are reported at cost, net of any unamortized acquisition premiums or discounts, loan fees, origination costs and allowance for credit losses as applicable.
The following tables summarize the Company’s loans held-for-investment by asset type, property type and geographic location as of March 31, 2020 and December 31, 2019:
|
| | | | | | | | | | | | | | | |
| March 31, 2020 |
(dollars in thousands) | Senior Loans (1) | | Mezzanine Loans | | B-Notes | | Total |
Unpaid principal balance | $ | 4,314,836 |
| | $ | 13,197 |
| | $ | 14,395 |
| | $ | 4,342,428 |
|
Unamortized (discount) premium | (115 | ) | | — |
| | — |
| | (115 | ) |
Unamortized net deferred origination fees | (28,498 | ) | | 1 |
| | — |
| | (28,497 | ) |
Allowance for credit losses | (61,261 | ) | | (1,016 | ) | | (288 | ) | | (62,565 | ) |
Carrying value | $ | 4,224,962 |
| | $ | 12,182 |
| | $ | 14,107 |
| | $ | 4,251,251 |
|
Unfunded commitments | $ | 762,756 |
| | $ | — |
| | $ | — |
| | $ | 762,756 |
|
Number of loans | 119 |
| | 2 |
| | 1 |
| | 122 |
|
Weighted average coupon | 5.1 | % | | 11.5 | % | | 8.0 | % | | 5.2 | % |
Weighted average years to maturity (2) | 1.6 |
| | 1.7 |
| | 6.8 |
| | 1.6 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2019 |
(dollars in thousands) | Senior Loans (1) | | Mezzanine Loans | | B-Notes | | Total |
Unpaid principal balance | $ | 4,229,194 |
| | $ | 13,503 |
| | $ | 14,448 |
| | $ | 4,257,145 |
|
Unamortized (discount) premium | (124 | ) | | — |
| | — |
| | (124 | ) |
Unamortized net deferred origination fees | (30,788 | ) | | (21 | ) | | — |
| | (30,809 | ) |
Carrying value | $ | 4,198,282 |
| | $ | 13,482 |
| | $ | 14,448 |
| | $ | 4,226,212 |
|
Unfunded commitments | $ | 748,878 |
| | $ | — |
| | $ | — |
| | $ | 748,878 |
|
Number of loans | 117 |
| | 2 |
| | 1 |
| | 120 |
|
Weighted average coupon | 5.4 | % | | 11.7 | % | | 8.0 | % | | 5.4 | % |
Weighted average years to maturity (2) | 1.8 |
| | 2.0 |
| | 7.1 |
| | 1.8 |
|
____________________
| |
(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. |
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
|
| | | | | | | | | | | | | | |
(dollars in thousands) | | March 31, 2020 | | December 31, 2019 |
Property Type | | Carrying Value | | % of Loan Portfolio | | Carrying Value | | % of Loan Portfolio |
Office | | $ | 1,788,377 |
| | 42.0 | % | | $ | 1,779,173 |
| | 42.0 | % |
Multifamily | | 1,063,785 |
| | 25.0 | % | | 1,058,708 |
| | 25.1 | % |
Hotel | | 661,760 |
| | 15.6 | % | | 640,503 |
| | 15.2 | % |
Retail | | 396,438 |
| | 9.3 | % | | 398,742 |
| | 9.4 | % |
Industrial | | 304,133 |
| | 7.2 | % | | 312,637 |
| | 7.4 | % |
Other | | 36,758 |
| | 0.9 | % | | 36,449 |
| | 0.9 | % |
Total | | $ | 4,251,251 |
| | 100.0 | % | | $ | 4,226,212 |
| | 100.0 | % |
|
| | | | | | | | | | | | | | |
(dollars in thousands) | | March 31, 2020 | | December 31, 2019 |
Geographic Location | | Carrying Value | | % of Loan Portfolio | | Carrying Value | | % of Loan Portfolio |
Northeast | | $ | 1,148,560 |
| | 27.1 | % | | $ | 1,196,767 |
| | 28.4 | % |
Southwest | | 874,194 |
| | 20.5 | % | | 923,519 |
| | 21.8 | % |
West | | 808,168 |
| | 19.0 | % | | 735,416 |
| | 17.4 | % |
Midwest | | 701,781 |
| | 16.5 | % | | 700,778 |
| | 16.6 | % |
Southeast | | 718,548 |
| | 16.9 | % | | 669,732 |
| | 15.8 | % |
Total | | $ | 4,251,251 |
| | 100.0 | % | | $ | 4,226,212 |
| | 100.0 | % |
At March 31, 2020 and December 31, 2019, the Company pledged loans held-for-investment with a carrying value, net of allowance for credit losses, of $4.2 billion and $4.1 billion, respectively, as collateral for repurchase agreements, an asset-specific financing facility, a revolving credit facility and securitized debt obligations. See Note 9 - Collateralized Borrowings and Note 10 - Securitized Debt Obligations.
The following table summarizes activity related to loans held-for-investment, net of allowance for credit losses, for the three months ended March 31, 2020 and 2019:
|
| | | | | | | |
| Three Months Ended March 31, |
(in thousands) | 2020 | | 2019 |
Balance at beginning of period | $ | 4,226,212 |
| | $ | 3,167,913 |
|
Originations, acquisitions and additional fundings | 187,422 |
| | 279,694 |
|
Repayments | (102,139 | ) | | (155,320 | ) |
Net discount accretion (premium amortization) | 8 |
| | 13 |
|
Increase in net deferred origination fees | (2,453 | ) | | (3,120 | ) |
Amortization of net deferred origination fees | 4,766 |
| | 3,809 |
|
Allowance for credit losses | (62,565 | ) | | — |
|
Balance at end of period | $ | 4,251,251 |
| | $ | 3,292,989 |
|
Subsequent to the adoption of ASU 2016-13 on January 1, 2020, to estimate and recognize an allowance for credit losses on loans held-for-investment and their related unfunded commitments, the Company continues to use a probability-weighted analytical model. Given the highly uncertain current macroeconomic environment and the lack of clarity on the near-term outlook for the overall U.S. economy as a result of the COVID-19 pandemic, in determining its allowance for credit losses estimate through March 31, 2020, the Company employed an updated third-party provided macroeconomic forecast over the reasonable projection period. This updated forecast reflects the impact of the COVID-19 pandemic on the overall U.S. economy, commercial real estate markets generally and is not specific to any loans in its portfolio. These estimates may change in future periods based on available future macro-economic data and might results in a material change in the Company’s future estimates of expected credit losses
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
for its loan portfolio. See Note 2 - Use of Estimates for further discussion of COVID-19. Significant inputs to the Company’s estimate of the allowance for credit losses include loan specific factors such as DSCR, LTV, remaining loan term, property type and others. In certain instances, for loans with unique risk characteristics, the Company may instead elect to employ different methods to estimate loan losses that also conform to ASU 2016-13 and related guidance.
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 future funding commitments is recorded as a component of other liabilities on the Company’s condensed consolidated balance sheets. As of March 31, 2020, the Company recognized $7.5 million in other liabilities related to the allowance for credit losses on unfunded commitments. Changes in the provision for credit losses for both loans held-for-investment and their related unfunded commitments are recognized through net income on the Company’s condensed consolidated statements of comprehensive (loss) income.
The following table presents the changes for the three months ended March 31, 2020 in the allowance for credit losses on loans held-for-investment:
|
| | | |
| Three Months Ended March 31, |
(in thousands) | 2020 |
Balance at beginning of period | $ | 16,692 |
|
Provision for credit losses | 45,873 |
|
Writeoffs | — |
|
Recoveries of amounts previously written off | — |
|
Balance at end of period | $ | 62,565 |
|
The Company’s primary credit quality indicators are its risk rankings. The Company evaluates the credit quality of each loan 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, LTV, 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 probability of default or principal loss. |
| |
5 – | Loss Likely: A loan that has a significantly increased probability of default or principal loss. |
The following table presents the number of loans, unpaid principal balance and carrying value by risk rating for loans held-for-investment as of March 31, 2020 and December 31, 2019:
|
| | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | | March 31, 2020 | | December 31, 2019 |
Risk Rating | | Number of Loans | | Unpaid Principal Balance | | Carrying Value | | Number of Loans | | Unpaid Principal Balance | | Carrying Value |
1 | | 4 |
| | $ | 104,751 |
| | $ | 103,889 |
| | 9 |
| | $ | 293,191 |
| | $ | 292,270 |
|
2 | | 97 |
| | 3,470,230 |
| | 3,408,924 |
| | 100 |
| | 3,661,077 |
| | 3,632,528 |
|
3 | | 17 |
| | 653,475 |
| | 633,979 |
| | 9 |
| | 243,127 |
| | 241,901 |
|
4 | | 4 |
| | 113,972 |
| | 104,459 |
| | 2 |
| | 59,750 |
| | 59,513 |
|
5 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | | 122 |
| | $ | 4,342,428 |
| | $ | 4,251,251 |
| | 120 |
| | $ | 4,257,145 |
| | $ | 4,226,212 |
|
As of December 31, 2019 (prior to the adoption of ASU 2016-13), the Company had not identified any impaired loans and it had not recorded any allowances for losses as it was not deemed probable that the Company would not be able to collect all amounts due pursuant to the contractual terms of the loans.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
The following table presents the carrying value of loans held-for-investment as of March 31, 2020 by risk rating and year of origination:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2020 |
(dollars in thousands) | | Origination Year | | |
Risk Rating | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total |
1 (Low Risk) | | $ | — |
| | $ | — |
| | $ | 49,269 |
| | $ | 21,290 |
| | $ | 33,330 |
| | $ | — |
| | $ | 103,889 |
|
2 (Average Risk) | | 122,649 |
| | 1,513,409 |
| | 892,526 |
| | 584,385 |
| | 186,142 |
| | 109,813 |
| | 3,408,924 |
|
3 (Acceptable Risk) | | — |
| | 84,461 |
| | 233,342 |
| | 189,622 |
| | — |
| | 126,554 |
| | 633,979 |
|
4 (High Risk) | | — |
| | — |
| | 38,793 |
| | 65,666 |
| | — |
| | — |
| | 104,459 |
|
5 (Loss Likely) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | | $ | 122,649 |
| | $ | 1,597,870 |
| | $ | 1,213,930 |
| | $ | 860,963 |
| | $ | 219,472 |
| | $ | 236,367 |
| | $ | 4,251,251 |
|
As of March 31, 2020 and December 31, 2019, the Company had not identified any loans that were past-due, in nonaccrual status, or in maturity default. Additionally, during the three months ended March 31, 2020, the Company did not enter into any loan modifications which were classified as troubled debt restructuring.
Note 5. Available-for-Sale Securities
The following table presents the components of the carrying value of AFS securities as of March 31, 2020 and December 31, 2019:
|
| | | | | | | |
(in thousands) | March 31, 2020 | | December 31, 2019 |
Face value | $ | 12,798 |
| | $ | 12,798 |
|
Unamortized premium (discount) | — |
| | — |
|
Allowance for credit losses | (767 | ) | | — |
|
Gross unrealized gains | — |
| | 32 |
|
Gross unrealized losses | (3,712 | ) | | — |
|
Carrying value | $ | 8,319 |
| | $ | 12,830 |
|
On March 31, 2020, the Company’s AFS securities had contractual maturities of less than one year.
At March 31, 2020 and December 31, 2019, the Company pledged AFS securities with a carrying value of $8.3 million and $12.8 million, respectively, as collateral for repurchase agreements. See Note 9 - Collateralized Borrowings.
At March 31, 2020, the Company’s AFS securities were in an unrealized loss position for less than twelve months. At December 31, 2019, the Company’s AFS securities were in an unrealized gain position.
Note 6. Held-to-Maturity Securities
The following table presents the components of the carrying value of HTM securities as of March 31, 2020 and December 31, 2019:
|
| | | | | | | |
(in thousands) | March 31, 2020 | | December 31, 2019 |
Face value | $ | 11,778 |
| | $ | 18,076 |
|
Unamortized premium (discount) | — |
| | — |
|
Allowance for credit losses | (942 | ) | | — |
|
Carrying value | $ | 10,836 |
| | $ | 18,076 |
|
On March 31, 2020, the Company’s HTM securities had contractual maturities of less than one year.
At March 31, 2020 and December 31, 2019, the Company pledged HTM securities with a carrying value of $10.8 million and $18.1 million, respectively, as collateral for repurchase agreements. See Note 9 - Collateralized Borrowings.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
Note 7. Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash held in bank accounts and cash held in money market funds on an overnight basis.
The Company is required to maintain certain cash balances in restricted accounts as collateral for the Company’s repurchase agreements and with counterparties to support investment activities. As of March 31, 2020 and December 31, 2019, the Company had $7.6 million and $3.4 million, respectively, as collateral for repurchase agreements and by counterparties to support investment activities. In addition, as of March 31, 2020 and December 31, 2019, the Company held $0.9 million and $76.1 million, respectively, in restricted cash representing proceeds from principal paydowns of loans held in the CLOs.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Company’s condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019 that sum to the total of the same such amounts shown in the statements of cash flows:
|
| | | | | | | |
(in thousands) | March 31, 2020 | | December 31, 2019 |
Cash and cash equivalents | $ | 99,332 |
| | $ | 80,281 |
|
Restricted cash | 8,533 |
| | 79,483 |
|
Total cash, cash equivalents and restricted cash | $ | 107,865 |
| | $ | 159,764 |
|
Note 8. Fair Value
Fair Value Measurements
ASC 820, Fair Value Measurements, or ASC 820, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). Additionally, ASC 820 requires an entity to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring fair value of a liability.
ASC 820 establishes a three-level hierarchy to be used when measuring and disclosing fair value. An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. Following is a description of the three levels:
| |
Level 1 | Inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date under current market conditions. Additionally, the entity must have the ability to access the active market and the quoted prices cannot be adjusted by the entity. |
| |
Level 2 | Inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full-term of the assets or liabilities. |
| |
Level 3 | Unobservable inputs are supported by little or no market activity. The unobservable inputs represent the assumptions that market participants would use to price the assets and liabilities, including risk. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies or similar techniques that require significant judgment or estimation. |
Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models and significant assumptions utilized.
Available-for-sale securities. The Company holds AFS securities that are carried at fair value on the condensed consolidated balance sheets and are comprised of CMBS. In determining the fair value of the Company’s CMBS AFS, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers or broker quotes received using the bid price, which are both deemed indicative of market activity and other applicable market data. The third-party pricing providers and brokers use pricing models that generally incorporate credit and cash flow factors including, but not limited to, required market yields for comparable investments, coupons, expected life of the security, property type, LTV and debt yield. If observable market prices are not available or insufficient to determine fair value due principally to illiquidity in the marketplace, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs (including prepayment speeds, delinquency levels and credit losses).
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
Recurring Fair Value
The following tables display the Company’s assets measured at fair value on a recurring basis. The Company does not hold any liabilities measured at fair value on its condensed consolidated balance sheets.
|
| | | | | | | | | | | | | | | |
| Recurring Fair Value Measurements |
| March 31, 2020 |
(in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | |
Available-for-sale securities | $ | — |
| | $ | 8,319 |
| | $ | — |
| | $ | 8,319 |
|
Total assets | $ | — |
| | $ | 8,319 |
| | $ | — |
| | $ | 8,319 |
|
|
| | | | | | | | | | | | | | | |
| Recurring Fair Value Measurements |
| December 31, 2019 |
(in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | |
Available-for-sale securities | $ | — |
| | $ | 12,830 |
| | $ | — |
| | $ | 12,830 |
|
Total assets | $ | — |
| | $ | 12,830 |
| | $ | — |
| | $ | 12,830 |
|
Transfers between Levels are deemed to take place on the first day of the reporting period in which the transfer has taken place. The Company did not incur transfers between Levels for the three months ended March 31, 2020 and 2019.
Nonrecurring Fair Value
The Company may be required to measure certain assets or liabilities at fair value from time to time. These periodic fair value measures typically result from application of certain impairment measures under GAAP. These items would constitute nonrecurring fair value measures under ASC 820. As of March 31, 2020 and December 31, 2019, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis in the periods presented.
Fair Value of Financial Instruments
In accordance with ASC 820, the Company is required to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in the condensed consolidated balance sheets, for which fair value can be estimated.
The following describes the Company’s methods for estimating the fair value for financial instruments:
| |
• | Loans held-for-investment are carried at cost, net of any unamortized acquisition premiums or discounts, loan fees, origination costs and allowance for credit losses, as applicable. The Company estimates the fair value of its loans held-for-investment by assessing any changes in market interest rates, shifts in credit profiles and actual operating results for mezzanine loans and senior loans, taking into consideration such factors as underlying property type, property competitive position within its market, market and submarket fundamentals, tenant mix, nature of business plan, sponsorship, extent of leverage and other loan terms. The Company categorizes the fair value measurement of these assets as Level 3. |
| |
• | AFS securities are recurring fair value measurements; carrying value equals fair value. See discussion of valuation methods and assumptions within the Fair Value Measurements section of this footnote. |
| |
• | HTM securities, which are comprised of CMBS, are carried at cost, net of any unamortized acquisition premiums or discounts and allowance for credit losses. In determining the fair value of the Company’s CMBS HTM, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers or broker quotes received using the bid price, which are both deemed indicative of market activity, and other applicable market data. The third-party pricing providers and brokers use pricing models that generally incorporate such factors as coupons, primary and secondary mortgage rates, rate reset period, issuer, prepayment speeds, credit enhancements and expected life of the security. The Company categorizes the fair value measurement of these assets as Level 2. |
| |
• | Cash and cash equivalents and restricted cash have a carrying value which approximates fair value because of the short maturities of these instruments. The Company categorizes the fair value measurement of these assets as Level 1. |
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
| |
• | The carrying value of repurchase agreements, asset-specific financings and revolving credit facilities that mature in less than one year generally approximates fair value due to the short maturities. The Company’s long-term repurchase agreements and asset-specific financings have floating rates based on an index plus a credit spread and the credit spread is typically consistent with those demanded in the market. Accordingly, the interest rates on these borrowings are at market and, thus, carrying value approximates fair value. The Company categorizes the fair value measurement of these liabilities as Level 2. |
| |
• | Securitized debt obligations are recorded at outstanding principal, net of any unamortized deferred debt issuance costs. In determining the fair value of its securitized debt obligations, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers, broker quotes received and other applicable market data. If observable market prices are not available or insufficient to determine fair value due principally to illiquidity in the marketplace, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs (including prepayment speeds, delinquency levels and credit losses). The Company categorizes the fair value measurement of these liabilities as Level 2. |
| |
• | Convertible senior notes are carried at their unpaid principal balance, net of any unamortized deferred issuance costs. The Company estimates the fair value of its convertible senior notes using the market transaction price nearest to March 31, 2020. The Company categorizes the fair value measurement of these assets as Level 2. |
The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at March 31, 2020 and December 31, 2019:
|
| | | | | | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
(in thousands) | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Assets | | | | | | | |
Loans held-for-investment, net of allowance for credit losses | $ | 4,251,251 |
| | $ | 4,269,192 |
| | $ | 4,226,212 |
| | $ | 4,261,612 |
|
Available-for-sale securities | $ | 8,319 |
| | $ | 8,319 |
| | $ | 12,830 |
| | $ | 12,830 |
|
Held-to-maturity securities | $ | 10,836 |
| | $ | 4,711 |
| | $ | 18,076 |
| | $ | 18,076 |
|
Cash and cash equivalents | $ | 99,332 |
| | $ | 99,332 |
| | $ | 80,281 |
| | $ | 80,281 |
|
Restricted cash | $ | 8,533 |
| | $ | 8,533 |
| | $ | 79,483 |
| | $ | 79,483 |
|
Liabilities | | | | | | | |
Repurchase agreements | $ | 2,072,099 |
| | $ | 2,072,099 |
| | $ | 1,924,021 |
| | $ | 1,924,021 |
|
Securitized debt obligations | $ | 982,312 |
| | $ | 846,600 |
| | $ | 1,041,044 |
| | $ | 1,050,912 |
|
|