000170364412/312021Q1FALSE0.05199430.0500894Restructuring Charges][In connection with the Internalization, the Company made a one-time cash payment of $44.5 million to the Former Manager. See Note 1 – Organization and Operations for additional discussion of the Company’s Internalization. The one-time payment to the Former Manager and other associated costs was recorded as restructuring charges within the statements of comprehensive income (loss) for the year ended December 31, 2020. March 31, 2021. There were no restructuring charges recorded during the three months ended March 31, 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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 March 31, 2021
or
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☐ | 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)
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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) 364-5500
(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 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.
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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 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 3, 2021, there were 55,107,657 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 | |
Item 1. | Financial Statements (unaudited) | |
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| PART II - OTHER INFORMATION | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
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| March 31, 2021 | | December 31, 2020 |
ASSETS | | | |
Loans held-for-investment | $ | 3,859,269 | | | $ | 3,914,469 | |
Allowance for credit losses | (59,433) | | | (66,666) | |
Loans held-for-investment, net | 3,799,836 | | | 3,847,803 | |
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Cash and cash equivalents | 255,411 | | | 261,419 | |
Restricted cash | 3,679 | | | 67,774 | |
Accrued interest receivable | 12,292 | | | 12,388 | |
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Other assets | 28,439 | | | 30,264 | |
Total Assets (1) | $ | 4,099,657 | | | $ | 4,219,648 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Liabilities | | | |
Repurchase facilities | $ | 1,238,541 | | | $ | 1,708,875 | |
Securitized debt obligations | 925,384 | | | 927,128 | |
Asset-specific financings | 123,091 | | | 123,091 | |
Term financing facility | 346,861 | | | — | |
Convertible senior notes | 271,649 | | | 271,250 | |
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Senior secured term loan facilities | 207,103 | | | 206,448 | |
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Dividends payable | 14,033 | | | 25,049 | |
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Other liabilities | 23,098 | | | 22,961 | |
Total Liabilities (1) | 3,149,760 | | | 3,284,802 | |
Commitments and Contingencies (see Note 10) | | | |
10% cumulative redeemable preferred stock, par value $0.01 per share; 50,000,000 shares authorized and 1,000 shares issued and outstanding ($1,000,000 liquidation preference) | 1,000 | | | 1,000 | |
Stockholders’ Equity | | | |
Common stock, par value $0.01 per share; 450,000,000 shares authorized and 55,107,657 and 55,136,885 shares issued and outstanding, respectively | 551 | | | 552 | |
Additional paid-in capital | 1,059,267 | | | 1,058,298 | |
Cumulative earnings | 131,156 | | | 103,165 | |
Cumulative distributions to stockholders | (242,202) | | | (228,169) | |
Total Granite Point Mortgage Trust, Inc. Stockholders’ Equity | 948,772 | | | 933,846 | |
Non-controlling interests | 125 | | | — | |
Total Equity | $ | 948,897 | | | $ | 933,846 | |
Total Liabilities and Stockholders’ Equity | $ | 4,099,657 | | | $ | 4,219,648 | |
____________________
(1)The condensed consolidated balance sheets include assets of consolidated variable interest entities, or VIEs, that can only be used to settle obligations of these VIEs, and liabilities of the consolidated VIEs for which creditors do not have recourse to Granite Point Mortgage Trust Inc. At March 31, 2021 and December 31, 2020, assets of the VIEs totaled $1,260,455 and $1,255,932, respectively, and liabilities of the VIEs totaled $926,871 and $928,220, respectively. See Note 4 - Variable Interest Entities and Securitized Debt Obligations for additional information.
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except share data)
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| | | | Three Months Ended |
| | | | March 31, |
| | | | | | 2021 | | 2020 | | |
Interest income: | | | | |
Loans held-for-investment | | | | | | $ | 54,039 | | | $ | 63,259 | | | |
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Available-for-sale securities | | | | | | — | | | 280 | | | |
Held-to-maturity securities | | | | | | — | | | 310 | | | |
Cash and cash equivalents | | | | | | 100 | | | 326 | | | |
Total interest income | | | | | | 54,139 | | | 64,175 | | | |
Interest expense: | | | | | | | | | | |
Repurchase facilities | | | | | | 8,951 | | | 19,675 | | | |
Securitized debt obligations | | | | | | 4,617 | | | 9,434 | | | |
Convertible senior notes | | | | | | 4,518 | | | 4,516 | | | |
Term financing facility | | | | | | 2,122 | | | — | | | |
Asset-specific financings | | | | | | 877 | | | 1,122 | | | |
Revolving credit facilities | | | | | | — | | | 242 | | | |
Senior secured term loan facilities | | | | | | 5,280 | | | — | | | |
Total interest expense | | | | | | 26,365 | | | 34,989 | | | |
Net interest income | | | | | | 27,774 | | | 29,186 | | | |
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Other income (loss): | | | | | | | | | | |
Benefit from (provision for) credit losses | | | | | | 9,119 | | | (53,336) | | | |
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Fee income | | | | | | — | | | 522 | | | |
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Total other income (loss) | | | | | | 9,119 | | | (52,814) | | | |
Expenses: | | | | | | | | | | |
Base management fees | | | | | | — | | | 3,907 | | | |
Compensation and benefits | | | | | | 5,460 | | | 4,373 | | | |
Servicing expenses | | | | | | 1,316 | | | 1,109 | | | |
Other operating expenses | | | | | | 2,127 | | | 4,180 | | | |
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Total expenses | | | | | | 8,903 | | | 13,569 | | | |
Income (loss) before income taxes | | | | | | 27,990 | | | (37,197) | | | |
Benefit from income taxes | | | | | | (1) | | | (6) | | | |
Net income (loss) | | | | | | 27,991 | | | (37,191) | | | |
Dividends on preferred stock | | | | | | 25 | | | 25 | | | |
Net income (loss) attributable to common stockholders | | | | | | $ | 27,966 | | | $ | (37,216) | | | |
Basic earnings (loss) per weighted average common share | | | | | | $ | 0.51 | | | $ | (0.68) | | | |
Diluted earnings (loss) per weighted average common share | | | | | | $ | 0.45 | | | $ | (0.68) | | | |
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Weighted average number of shares of common stock outstanding: | | | | | | | | | | |
Basic | | | | | | 55,137,608 | | | 55,056,411 | | | |
Diluted | | | | | | 71,834,396 | | | 55,056,411 | | | |
Comprehensive income (loss): | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | | | | | $ | 27,966 | | | $ | (37,216) | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | |
Unrealized gain (loss) on available-for-sale securities | | | | | | — | | | (3,744) | | | |
Other comprehensive income (loss) | | | | | | — | | | (3,744) | | | |
Comprehensive income (loss) | | | | | | $ | 27,966 | | | $ | (40,960) | | | |
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)
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| Common Stock | | | | | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Cumulative Earnings | | Cumulative Distributions to Stockholders | | Total Stockholders’ Equity | | Non-controlling Interests | | Total Equity |
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Balance, December 31, 2019 | 54,853,205 | | | 549 | | | 1,048,484 | | | 32 | | | 162,076 | | | (192,005) | | | 1,019,136 | | | — | | | 1,019,136 | |
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Cumulative effect of adoption of new accounting principle | — | | | — | | | — | | | — | | | (18,472) | | | — | | | (18,472) | | | — | | | (18,472) | |
Adjusted balance, January 1, 2020 | 54,853,205 | | | 549 | | | 1,048,484 | | | 32 | | | 143,604 | | | (192,005) | | | 1,000,664 | | | — | | | 1,000,664 | |
Net loss | — | | | — | | | — | | | — | | | (37,191) | | | — | | | (37,191) | | | — | | | (37,191) | |
Other comprehensive loss before reclassifications | — | | | — | | | — | | | (4,511) | | | — | | | — | | | (4,511) | | | — | | | (4,511) | |
Amounts reclassified from accumulated other comprehensive income | — | | | — | | | — | | | 767 | | | — | | | — | | | 767 | | | — | | | 767 | |
Net other comprehensive loss | — | | | — | | | — | | | (3,744) | | | — | | | — | | | (3,744) | | | — | | | (3,744) | |
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Preferred dividends declared, $25.00 per share | — | | | — | | | — | | | — | | | — | | | (25) | | | (25) | | | — | | | (25) | |
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Non-cash equity award compensation | 283,680 | | | 3 | | | 1,352 | | | — | | | — | | | — | | | 1,355 | | | — | | | 1,355 | |
Balance, March 31, 2020 | 55,136,885 | | | $ | 552 | | | $ | 1,049,836 | | | $ | (3,712) | | | $ | 106,413 | | | $ | (192,030) | | | $ | 961,059 | | | $ | — | | | $ | 961,059 | |
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Balance, December 31, 2020 | 55,205,082 | | | 552 | | | 1,058,298 | | | — | | | 103,165 | | | (228,169) | | | 933,846 | | | — | | | 933,846 | |
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Net income | — | | | — | | | — | | | — | | | 27,991 | | | — | | | 27,991 | | | — | | | 27,991 | |
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Restricted stock forfeiture | (97,425) | | | (1) | | | (918) | | | — | | | — | | | — | | | (919) | | | — | | | (919) | |
Common dividends declared, $0.25 per share | — | | | — | | | — | | | — | | | — | | | (14,008) | | | (14,008) | | | — | | | (14,008) | |
Preferred dividends declared, $25.00 per share | — | | | — | | | — | | | — | | | — | | | (25) | | | (25) | | | — | | | (25) | |
Non-cash equity award compensation | — | | | — | | | 1,887 | | | — | | | — | | | — | | | 1,887 | | | — | | | 1,887 | |
Contributions from non-controlling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 125 | | | 125 | |
Balance, March 31, 2021 | 55,107,657 | | | $ | 551 | | | $ | 1,059,267 | | | $ | — | | | $ | 131,156 | | | $ | (242,202) | | | $ | 948,772 | | | $ | 125 | | | $ | 948,897 | |
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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)
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| | Three Months Ended |
| | March 31, |
| | 2021 | | 2020 | | |
Cash Flows From Operating Activities: | | | | |
Net income (loss) | | $ | 27,991 | | | $ | (37,191) | | | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | |
Accretion of discounts and net deferred fees on loans held-for-investment and deferred interest capitalized to loans held-for-investment | | (9,130) | | | (4,774) | | | |
Amortization of deferred debt issuance costs on repurchase facilities, asset-specific financings, convertible senior notes, securitized debt obligations, senior secured term loan facilities and term financing facilities | | 2,989 | | | 1,665 | | | |
(Benefit from) provision for credit losses | | (9,119) | | | 53,336 | | | |
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Amortization of equity-based compensation | | 1,887 | | | 1,355 | | | |
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Net change in assets and liabilities: | | | | | | |
Decrease in accrued interest receivable | | 96 | | | 108 | | | |
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Decrease (increase) in other assets | | 354 | | | (54,735) | | | |
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Increase in other liabilities | | 2,061 | | | 904 | | | |
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Net cash provided by (used in) operating activities | | 17,129 | | | (39,332) | | | |
Cash Flows From Investing Activities: | | | | | | |
Originations, acquisitions and additional fundings of loans held-for-investment, net of deferred fees | | (37,258) | | | (184,969) | | | |
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Proceeds from repayment of loans held-for-investment | | 101,588 | | | 102,139 | | | |
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Principal payments on held-to-maturity securities | | — | | | 6,298 | | | |
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Net cash provided by (used in) investing activities | | 64,330 | | | (76,532) | | | |
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Cash Flows From Financing Activities: | | | | | | |
Proceeds from repurchase facilities | | 8,966 | | | 237,344 | | | |
Principal payments on repurchase facilities | | (479,300) | | | (89,266) | | | |
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Principal payments on securitized debt obligations | | (2,142) | | | (60,000) | | | |
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Proceeds from asset-specific financings | | — | | | 2,597 | | | |
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Proceeds from revolving credit facilities | | — | | | 38,361 | | | |
Repayment of revolving credit facilities | | — | | | (42,008) | | | |
Proceeds from term financing facility | | 349,291 | | | — | | | |
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Term financing facility deferred debt issuance costs | | (2,535) | | | — | | | |
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Contributions from non-controlling interests | | 125 | | | — | | | |
Tax withholding on restricted stock | | (918) | | | — | | | |
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Dividends paid on preferred stock | | (25) | | | (25) | | | |
Dividends paid on common stock | | (25,024) | | | (23,038) | | | |
Net cash (used in) provided by financing activities | | (151,562) | | | 63,965 | | | |
Net decrease in cash, cash equivalents and restricted cash | | (70,103) | | | (51,899) | | | |
Cash, cash equivalents and restricted cash at beginning of period | | 329,193 | | | 159,764 | | | |
Cash, cash equivalents and restricted cash at end of period | | $ | 259,090 | | | $ | 107,865 | | | |
Supplemental Disclosure of Cash Flow Information: | | | | | | |
Cash paid for interest | | $ | 21,926 | | | $ | 31,914 | | | |
Cash paid for taxes | | $ | 610 | | | $ | — | | | |
Noncash Activities: | | | | | | |
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Dividends declared but not paid at end of period | | $ | 14,033 | | | $ | 25 | | | |
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. is an internally-managed real estate finance company that focuses primarily on directly originating, investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments. These investments are capitalized by accessing a variety of funding options, including borrowing under our bank credit facilities or other asset-specific financings, issuing commercial real estate collateralized loan obligations, or CRE CLOs, entering into other term financing agreements, and issuing other forms of secured and unsecured debt and equity securities, depending on market conditions and our view of the most appropriate funding option available for our investments. Our investment objective is to preserve our stockholders’ capital while generating attractive risk-adjusted returns over the long term, primarily through dividends derived from current income produced by our investment portfolio. Our common stock is listed on the New York Stock Exchange, or NYSE, under the symbol “GPMT”. We operate our business in a manner that will permit us to maintain our exclusion from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act. We operate our business as one segment. We were incorporated in Maryland on April 7, 2017 and commenced operations as a publicly traded company on June 28. 2017.
The Company has elected to be treated as a real estate investment trust, or REIT, as defined under the Internal Revenue Code of 1986, as amended, or the Code, for U.S. federal income tax purposes. As long as the Company continues to comply with a number of requirements under federal tax law and maintains its qualification as a REIT, the Company generally will not be subject to U.S. federal income taxes to the extent that the Company distributes its taxable income to its stockholders on an annual basis and does not engage in prohibited transactions. However, certain activities that the Company may perform may cause it to earn income which will not be qualifying income for REIT purposes. The Company has designated one of its subsidiaries as a taxable REIT subsidiary, or TRS, as defined in the Code, to engage in such activities.
Through December 31, 2020, the Company was externally managed by Pine River Capital Management L.P., or the Former Manager, at which time the Company internalized its management function, or the Internalization.
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, 2020. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at March 31, 2021 and results of operations for all periods presented have been made. The results of operations for the three months ended March 31, 2021 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.
We currently operate in one reporting segment.
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
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
market, local geographic sub-markets or other factors) will occur in the near term. As of March 31, 2021, the COVID-19 pandemic remains ongoing. During 2020, the pandemic created significant macroeconomic disruptions, increased rates of unemployment and has adversely impacted many industries, including those related to the real estate collateral underlying certain of our loans. So far in 2021, the global and U.S. economic activity has, moderately and to varying degrees, begun to return, as wider distribution of the COVID-19 vaccines has continued. As a result, macroeconomic forecasts have improved over the last few quarters, including expectations for unemployment rates and overall economic output. Nonetheless, the ongoing pandemic may continue to adversely impact macroeconomic recovery, particularly with respect to the continued distribution and acceptance of the vaccines and their effectiveness against new variants of the virus. Even though the overall market conditions have been improving, the fluid nature of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and real estate markets. Accordingly, given the ongoing nature of the outbreak, at this time the Company cannot reasonably estimate the magnitude of the long-term impact that COVID-19 may have on the Company’s business, financial performance and operating results. The Company believes the estimates and assumptions underlying its condensed consolidated financial statements are reasonable and supportable based on the information available as of March 31, 2021. However, given the 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, 2021 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 such 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, 2020 is a summary of the Company’s significant accounting policies. Provided below is a summary of additional accounting policies that are significant to the Company’s condensed consolidated financial condition and results of operations for the three months ended March 31, 2021.
Term Financing Facility
The Company finances certain of its loans held-for-investment through the use of a term financing facility. Borrowings under the term financing facility bear an interest rate of a specified margin over the one-month London Interbank Offered Rate, or LIBOR. The term financing facility 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
Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, or ASU No. 2020-04, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU No. 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of adopting this ASU on its condensed consolidated financial statements.
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in an Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, or ASU No. 2020-06. The intention of ASU No. 2020-06 is to address the complexities in accounting for certain financial instruments with a debt and equity component. Under ASU No. 2020-06, the number of accounting models for convertible notes will be reduced and entities that issue convertible debt will be required to use the if-converted method for the computation of diluted "Earnings per share" under ASC 260. ASC 2020-06 is effective for fiscal years beginning after December 15, 2021 and may be adopted through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently assessing the impact this guidance will have on its condensed consolidated financial statements.
Note 3. 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.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
The following tables summarize the Company’s loans held-for-investment by asset type, property type and geographic location as of March 31, 2021 and December 31, 2020:
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| March 31, 2021 |
(dollars in thousands) | Senior Loans (1) | | Mezzanine Loans | | B-Notes | | Total |
Unpaid principal balance | $ | 3,856,413 | | | $ | 2,034 | | | $ | 14,176 | | | $ | 3,872,623 | |
Unamortized (discount) premium | (68) | | | — | | | — | | | (68) | |
Unamortized net deferred origination fees | (13,286) | | | — | | | — | | | (13,286) | |
Allowance for credit losses | (53,437) | | | (2,034) | | | (3,962) | | | (59,433) | |
Carrying value | $ | 3,789,622 | | | $ | — | | | $ | 10,214 | | | $ | 3,799,836 | |
Unfunded commitments | $ | 453,534 | | | $ | — | | | $ | — | | | $ | 453,534 | |
Number of loans | 98 | | | 1 | | | 1 | | | 100 | |
Weighted average coupon | 5.1 | % | | 13.0 | % | | 8.0 | % | | 5.1 | % |
Weighted average years to maturity (2) | 0.9 | | 4.6 | | 5.8 | | 0.9 |
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| December 31, 2020 |
(dollars in thousands) | Senior Loans (1) | | Mezzanine Loans | | B-Notes | | Total |
Unpaid principal balance | $ | 3,915,833 | | | $ | 2,366 | | | $ | 14,235 | | | $ | 3,932,434 | |
Unamortized (discount) premium | (75) | | | — | | | — | | | (75) | |
Unamortized net deferred origination fees | (17,890) | | | — | | | — | | | (17,890) | |
Allowance for credit losses | (60,130) | | | (2,366) | | | (4,170) | | | (66,666) | |
Carrying value | $ | 3,837,738 | | | $ | — | | | $ | 10,065 | | | $ | 3,847,803 | |
Unfunded commitments | $ | 503,726 | | | $ | — | | | $ | — | | | $ | 503,726 | |
Number of loans | 101 | | | 1 | | | 1 | | | 103 | |
Weighted average coupon | 5.1 | % | | 13.0 | % | | 8.0 | % | | 5.1 | % |
Weighted average years to maturity (2) | 1.1 | | 4.9 | | 6.1 | | 1.1 |
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(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.
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(dollars in thousands) | | March 31, 2021 | | December 31, 2020 |
Property Type | | Carrying Value | | % of Loan Portfolio | | Carrying Value | | % of Loan Portfolio |
Office | | $ | 1,743,557 | | | 45.9 | % | | $ | 1,720,705 | | | 44.7 | % |
Multifamily | | 902,334 | | | 23.8 | % | | 910,557 | | | 23.7 | % |
Hotel | | 658,821 | | | 17.3 | % | | 646,869 | | | 16.8 | % |
Retail | | 330,833 | | | 8.7 | % | | 332,218 | | | 8.6 | % |
Industrial | | 125,769 | | | 3.3 | % | | 196,677 | | | 5.1 | % |
Other | | 38,522 | | | 1.0 | % | | 40,777 | | | 1.1 | % |
Total | | $ | 3,799,836 | | | 100.0 | % | | $ | 3,847,803 | | | 100.0 | % |
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | | March 31, 2021 | | December 31, 2020 |
Geographic Location | | Carrying Value | | % of Loan Portfolio | | Carrying Value | | % of Loan Portfolio |
Northeast | | $ | 1,009,667 | | | 26.6 | % | | $ | 1,028,584 | | | 26.8 | % |
Southwest | | 813,610 | | | 21.4 | % | | 802,233 | | | 20.8 | % |
West | | 640,788 | | | 16.9 | % | | 682,236 | | | 17.7 | % |
Midwest | | 708,060 | | | 18.6 | % | | 712,675 | | | 18.5 | % |
Southeast | | 627,711 | | | 16.5 | % | | 622,075 | | | 16.2 | % |
| | | | | | | | |
Total | | $ | 3,799,836 | | | 100.0 | % | | $ | 3,847,803 | | | 100.0 | % |
At March 31, 2021 and December 31, 2020, the Company pledged loans held-for-investment with a carrying value, net of allowance for credit losses, of $3.8 billion for both periods, as collateral under repurchase facilities, an asset-specific financing facility, a term financing facility and securitized debt obligations. See Note 4 - Variable Interest Entities and Securitized Debt Obligations and Note 5 - Collateralized Borrowings.
The following table summarizes activity related to loans held-for-investment, net of allowance for credit losses, for the three months ended March 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(in thousands) | | | | | 2021 | | 2020 | | |
Balance at beginning of period | | | | | $ | 3,847,803 | | | $ | 4,226,212 | | | |
Originations, acquisitions and additional fundings | | | | | 41,777 | | | 187,422 | | | |
| | | | | | | | | |
Repayments | | | | | (101,588) | | | (102,139) | | | |
| | | | | | | | | |
Net discount accretion (premium amortization) | | | | | 7 | | | 8 | | | |
Increase in net deferred origination fees | | | | | (34) | | | (2,453) | | | |
Amortization of net deferred origination fees | | | | | 4,638 | | | 4,766 | | | |
| | | | | | | | | |
Benefit from (provision for) credit losses | | | | | 7,233 | | | (62,565) | | | |
Balance at end of period | | | | | $ | 3,799,836 | | | $ | 4,251,251 | | | |
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. The Company employs quarterly updated macroeconomic forecasts, which reflect the ongoing impact of the COVID-19 pandemic on the overall U.S. economy and commercial real estate markets generally. Driven by the general progress around the development and distribution of the COVID-19 vaccines over the last few quarters, those macroeconomic forecasts have been improving, including expectations for unemployment rates and overall economic output. Significant inputs to the Company’s estimate of the allowance for credit losses include loan specific factors such as debt service coverage ratio, or DSCR, loan to value ratio, or LTV, remaining contractual loan term, property type and others. 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. As of March 31, 2021, the Company has maintained its determination that the recovery of loan principal associated with one hotel senior loan, with an unpaid principal balance of $67.3 million, is collateral-dependent, as further discussed below.
As of March 31, 2021, the Company recognized an allowance for credit losses related to its loans held-for-investment of $59.4 million, which reflected a benefit from provision for credit losses of $7.2 million. The allowance for credit losses related to the Company’s loans held-for-investment is deducted from the amortized cost basis of related loans, while the allowance for credit losses related to off-balance sheet unfunded commitments on existing loans is recorded as a component of other liabilities on the Company’s condensed consolidated balance sheets. As of March 31, 2021, the Company recognized $3.6 million in other liabilities related to the allowance for credit losses on unfunded commitments. During the three months ended March 31, 2021, the Company recognized a benefit from provision for credit losses of $1.9 million 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 income (loss).
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
The following table presents the changes for the three months ended March 31, 2021 in the allowance for credit losses on loans held-for-investment:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2021 | | 2020 | | | | | | |
Balance at beginning of period | $ | 66,666 | | | $ | 16,692 | | | | | | | |
(Benefit from) provision for credit losses | (7,233) | | | 45,873 | | | | | | | |
Writeoffs | — | | | — | | | | | | | |
Recoveries of amounts previously written off | — | | | — | | | | | | | |
Balance at end of period | $ | 59,433 | | | $ | 62,565 | | | | | | | |
Generally, loans held-for-investment are placed on nonaccrual status when delinquent for more than 90 days or when determined not to be probable of full collection. Interest income recognition is suspended when loans are placed on nonaccrual status. As of March 31, 2021, the Company had one senior loan with an unpaid principal balance of $22.3 million and a carrying value of $19.3 million that was held on nonaccrual status. The Company wrote off $0.8 million of accrued interest related to this loan during the three months ended December 31, 2020. Any reversal of accrued interest income is recorded in interest income on the Company’s condensed consolidated statements of comprehensive income (loss). No other loans were considered past due as of March 31, 2021.
The Company’s primary credit quality indicators are its risk ratings. 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:
1 –Lower Risk
2 –Average Risk
3 –Acceptable Risk
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 principal loss.
5 –Loss Likely: A loan that has a significantly increased probability of 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, 2021 and December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | | March 31, 2021 | | December 31, 2020 |
Risk Rating | | Number of Loans | | Unpaid Principal Balance | | Carrying Value | | Number of Loans | | Unpaid Principal Balance | | Carrying Value |
1 | | 6 | | | $ | 183,564 | | | $ | 183,110 | | | 6 | | | $ | 183,369 | | | $ | 182,730 | |
2 | | 50 | | | 1,884,413 | | | 1,866,732 | | | 50 | | | 1,863,590 | | | 1,847,332 | |
3 | | 27 | | | 993,656 | | | 979,628 | | | 29 | | | 1,055,782 | | | 1,026,662 | |
4 | | 16 | | | 743,735 | | | 711,452 | | | 17 | | | 762,636 | | | 732,310 | |
5 | | 1 | | | 67,255 | | | 58,914 | | | 1 | | | 67,057 | | | 58,769 | |
Total | | 100 | | | $ | 3,872,623 | | | $ | 3,799,836 | | | 103 | | | $ | 3,932,434 | | | $ | 3,847,803 | |
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
As of March 31, 2021, the Company held one senior loan with an unpaid principal balance of $67.3 million with a risk rating of “5.” The Company determined that the recovery of its loan principal is collateral-dependent. Accordingly, this loan was assessed individually and the Company has elected to apply a practical expedient in accordance with ASU 2016-13, and an allowance for credit loss of $8.3 million is recorded on this loan using the discounted cash flow method of valuation to reduce the carrying value of the loan to the estimated fair value of the property less the estimated cost to foreclose and sell the property. The loan had been previously modified and, during the three months ended December 31, 2020, the Company negotiated with the borrower a new short-term extension of the prior modification, which was accounted for as a troubled debt restructuring under GAAP. The Company is evaluating a variety of potential options with respect to the resolution of this loan, which, among other things, may include a sale or negotiated deed-in-lieu of foreclosure. The estimate of the fair value of the hotel collateral was developed using a discounted cash flow model and Level 3 inputs, which required significant judgment and included estimates of: (i) property cash flows over a specific holding period, (ii) forecasted submarket hotel revenue per available room, or RevPAR, rates and subject RevPAR penetration, (iii) operating expenses, (iv) property and income taxes, (v) the borrower’s exit plan and related costs, (vi) capitalization and discount rates, and (vii) overall market conditions. These inputs were in part developed based on discussions with various market participants and management’s best estimates as of the valuation date.
The following table presents the carrying value of loans held-for-investment as of March 31, 2021 and 2020 by risk rating and year of origination:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 |
(dollars in thousands) | | Origination Year | | |
Risk Rating | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total |
1 (Low Risk) | | $ | — | | | $ | 18,322 | | | $ | 75,639 | | | $ | 55,552 | | | $ | 33,597 | | | $ | — | | | $ | 183,110 | |
2 (Average Risk) | | 77,609 | | | 1,110,218 | | | 439,391 | | | 148,010 | | | 37,069 | | | 54,435 | | | 1,866,732 | |
3 (Acceptable Risk) | | 12,961 | | | 315,427 | | | 333,761 | | | 249,408 | | | 68,071 | | | — | | | 979,628 | |
4 (Higher Risk) | | 42,478 | | | 110,949 | | | 215,920 | | | 197,681 | | | — | | | 144,424 | | | 711,452 | |
5 (Loss Likely) | | — | | | 58,914 | | | — | | | — | | | — | | | — | | | 58,914 | |
Total | | $ | 133,048 | | | $ | 1,613,830 | | | $ | 1,064,711 | | | $ | 650,651 | | | $ | 138,737 | | | $ | 198,859 | | | $ | 3,799,836 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
Note 4. Variable Interest Entities and Securitized Debt Obligations
The Company finances pools of its commercial real estate loans through CRE 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 CRE 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 CRE CLOs.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
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, 2021 and December 31, 2020:
| | | | | | | | | | | |
(in thousands) | March 31, 2021 | | December 31, 2020 |
Loans held-for-investment | $ | 1,261,943 | | | $ | 1,200,479 | |
Allowance for credit losses | (10,437) | | | (15,914) | |
Loans held-for-investment, net | 1,251,506 | | | 1,184,565 | |
| | | |
Restricted cash | — | | | 62,804 | |
| | | |
Other assets | 8,949 | | | 8,563 | |
Total Assets | $ | 1,260,455 | | | $ | 1,255,932 | |
Securitized debt obligations | $ | 925,384 | | | |