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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 September 30, 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 November 4, 2021, there were 53,789,465 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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| September 30, 2021 | | December 31, 2020 |
ASSETS | | | |
Loans held-for-investment | $ | 3,659,691 | | | $ | 3,914,469 | |
Allowance for credit losses | (45,480) | | | (66,666) | |
Loans held-for-investment, net | 3,614,211 | | | 3,847,803 | |
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Cash and cash equivalents | 154,916 | | | 261,419 | |
Restricted cash | 20,602 | | | 67,774 | |
Accrued interest receivable | 9,898 | | | 12,388 | |
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Other assets | 99,563 | | | 30,264 | |
Total Assets (1) | $ | 3,899,190 | | | $ | 4,219,648 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Liabilities | | | |
Repurchase facilities | $ | 916,758 | | | $ | 1,708,875 | |
Securitized debt obligations | 1,356,429 | | | 927,128 | |
Asset-specific financings | 44,752 | | | 123,091 | |
Term financing facility | 127,867 | | | — | |
Convertible senior notes | 272,512 | | | 271,250 | |
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Senior secured term loan facilities | 208,785 | | | 206,448 | |
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Dividends payable | 13,713 | | | 25,049 | |
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Other liabilities | 25,140 | | | 22,961 | |
Total Liabilities (1) | 2,965,956 | | | 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 53,789,465 and 55,205,082 shares issued and outstanding, respectively | 538 | | | 552 | |
Additional paid-in capital | 1,037,395 | | | 1,058,298 | |
Cumulative earnings | 164,055 | | | 103,165 | |
Cumulative distributions to stockholders | (269,879) | | | (228,169) | |
Total Granite Point Mortgage Trust, Inc. Stockholders’ Equity | 932,109 | | | 933,846 | |
Non-controlling interests | 125 | | | — | |
Total Equity | $ | 932,234 | | | $ | 933,846 | |
Total Liabilities and Stockholders’ Equity | $ | 3,899,190 | | | $ | 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 September 30, 2021 and December 31, 2020, assets of the VIEs totaled $1,824,173 and $1,255,932, respectively, and liabilities of the VIEs totaled $1,357,675 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 | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | |
Interest income: | | | | |
Loans held-for-investment | | $ | 48,312 | | | $ | 56,783 | | | $ | 151,701 | | | $ | 180,341 | | | |
Loans held-for-sale | | — | | | 774 | | | — | | | 895 | | | |
Available-for-sale securities | | — | | | 119 | | | — | | | 646 | | | |
Held-to-maturity securities | | — | | | 113 | | | — | | | 659 | | | |
Cash and cash equivalents | | 95 | | | 57 | | | 298 | | | 424 | | | |
Total interest income | | 48,407 | | | 57,846 | | | 151,999 | | | 182,965 | | | |
Interest expense: | | | | | | | | | | |
Repurchase facilities | | 5,451 | | | 12,791 | | | 20,449 | | | 46,742 | | | |
Securitized debt obligations | | 8,777 | | | 5,431 | | | 20,523 | | | 21,367 | | | |
Convertible senior notes | | 4,556 | | | 4,529 | | | 13,618 | | | 13,570 | | | |
Term financing facility | | 1,453 | | | — | | | 6,208 | | | — | | | |
Asset-specific financings | | 414 | | | 901 | | | 1,959 | | | 2,962 | | | |
Revolving credit facilities | | — | | | 217 | | | — | | | 779 | | | |
Senior secured term loan facilities | | 5,654 | | | 145 | | | 16,587 | | | 145 | | | |
Total interest expense | | 26,305 | | | 24,014 | | | 79,344 | | | 85,565 | | | |
Net interest income | | 22,102 | | | 33,832 | | | 72,655 | | | 97,400 | | | |
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Other income (loss): | | | | | | | | | | |
Benefit from (provision for) credit losses | | 5,760 | | | 5,300 | | | 15,072 | | | (62,241) | | | |
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Realized losses on sales of loans held-for-sale | | — | | | (10,019) | | | — | | | (16,913) | | | |
Fee income | | — | | | 595 | | | — | | | 1,117 | | | |
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Total other income (loss) | | 5,760 | | | (4,124) | | | 15,072 | | | (78,037) | | | |
Expenses: | | | | | | | | | | |
Base management fees | | — | | | 3,974 | | | — | | | 11,840 | | | |
Compensation and benefits | | 5,634 | | | — | | | 16,111 | | | — | | | |
Servicing expenses | | 1,323 | | | 914 | | | 3,763 | | | 3,025 | | | |
Other operating expenses | | 2,276 | | | 5,808 | | | 6,967 | | | 24,421 | | | |
Restructuring charges | | — | | | 43,682 | | | — | | | 43,682 | | | |
Total expenses | | 9,233 | | | 54,378 | | | 26,841 | | | 82,968 | | | |
Income (loss) before income taxes | | 18,629 | | | (24,670) | | | 60,886 | | | (63,605) | | | |
Benefit from income taxes | | (1) | | | (4) | | | (4) | | | (15) | | | |
Net income (loss) | | 18,630 | | | (24,666) | | | 60,890 | | | (63,590) | | | |
Dividends on preferred stock | | 25 | | | 25 | | | 75 | | | 75 | | | |
Net income (loss) attributable to common stockholders | | $ | 18,605 | | | $ | (24,691) | | | $ | 60,815 | | | $ | (63,665) | | | |
Basic earnings (loss) per weighted average common share | | $ | 0.34 | | | $ | (0.45) | | | $ | 1.11 | | | $ | (1.15) | | | |
Diluted earnings (loss) per weighted average common share | | $ | 0.33 | | | $ | (0.45) | | | $ | 1.05 | | | $ | (1.15) | | | |
Dividends declared per common share | | $ | 0.25 | | | $ | 0.20 | | | $ | 0.75 | | | $ | 0.20 | | | |
Weighted average number of shares of common stock outstanding: | | | | | | | | | | |
Basic | | 54,453,546 | | | 55,205,082 | | | 54,864,456 | | | 55,140,163 | | | |
Diluted | | 56,735,278 | | | 55,205,082 | | | 70,902,745 | | | 55,140,163 | | | |
Comprehensive income (loss): | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | $ | 18,605 | | | $ | (24,691) | | | $ | 60,815 | | | $ | (63,665) | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Comprehensive income (loss) | | $ | 18,605 | | | $ | (24,691) | | | $ | 60,815 | | | $ | (63,665) | | | |
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 | |
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) | |
| | | | | | | | | | | | | | | | | |
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 | |
Net loss | — | | | — | | | — | | | — | | | (1,733) | | | — | | | (1,733) | | | — | | | (1,733) | |
Other comprehensive income before reclassifications | — | | | — | | | — | | | 4,223 | | | — | | | — | | | 4,223 | | | — | | | 4,223 | |
Amounts reclassified from accumulated other comprehensive income | — | | | — | | | — | | | (511) | | | — | | | — | | | (511) | | | — | | | (511) | |
Net other comprehensive income | — | | | — | | | — | | | 3,712 | | | — | | | — | | | 3,712 | | | — | | | 3,712 | |
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Preferred dividends declared, $25.00 per share | — | | | — | | | — | | | — | | | — | | | (25) | | | (25) | | | — | | | (25) | |
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Non-cash equity award compensation | 68,197 | | | — | | | 1,323 | | | — | | | — | | | — | | | 1,323 | | | — | | | 1,323 | |
Balance, June 30, 2020 | 55,205,082 | | | 552 | | | 1,051,159 | | | — | | | 104,680 | | | (192,055) | | | 964,336 | | | — | | | 964,336 | |
Net loss | — | | | — | | | — | | | — | | | (24,666) | | | — | | | (24,666) | | | — | | | (24,666) | |
Issuance of warrants to purchase common stock | — | | | — | | | 4,541 | | | — | | | — | | | — | | | 4,541 | | | — | | | 4,541 | |
Common dividends declared, $0.20 per share | — | | | $ | — | | | — | | | — | | | — | | | (11,040) | | | (11,040) | | | — | | | (11,040) | |
Preferred dividends declared, $25.00 per share | — | | | $ | — | | | — | | | — | | | — | | | (25) | | | (25) | | | — | | | (25) | |
Non-cash equity award compensation | — | | | $ | — | | | 1,316 | | | — | | | — | | | — | | | 1,316 | | | — | | | 1,316 | |
Balance, September 30, 2020 | 55,205,082 | | | $ | 552 | | | $ | 1,057,016 | | | $ | — | | | $ | 80,014 | | | $ | (203,120) | | | $ | 934,462 | | | — | | | $ | 934,462 | |
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GRANITE POINT MORTGAGE TRUST INC
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data) (Continued)
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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 |
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 | | | — | | | |
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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 | |
Net income | — | | | — | | | — | | | — | | | 14,269 | | | — | | | 14,269 | | | — | | | 14,269 | |
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Restricted stock forfeiture | (17,628) | | | | | (275) | | | — | | | — | | | — | | | (275) | | | — | | | (275) | |
Repurchase of common stock | (300,891) | | | (3) | | | (4,267) | | | — | | | — | | | — | | | (4,270) | | | — | | | (4,270) | |
Common dividends declared, $0.25 per share | — | | | — | | | — | | | — | | | — | | | (13,939) | | | (13,939) | | | — | | | (13,939) | |
Preferred dividends declared, $25.00 per share | — | | | — | | | — | | | — | | | — | | | (25) | | | (25) | | | — | | | (25) | |
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Non-cash equity award compensation | 1,048 | | | — | | | 1,639 | | | — | | | — | | | — | | | 1,639 | | | — | | | 1,639 | |
Balance, June 30, 2021 | 54,790,186 | | | 548 | | | 1,056,364 | | | — | | | 145,425 | | | (256,166) | | | 946,171 | | | 125 | | | 946,296 | |
Net income | — | | | — | | | — | | | — | | | 18,630 | | | — | | | 18,630 | | | — | | | 18,630 | |
Settlement of warrants to purchase common stock | — | | | — | | | (7,478) | | | — | | | — | | | — | | | (7,478) | | | — | | | (7,478) | |
Repurchase of common stock | (1,000,721) | | | (10) | | | (13,523) | | | — | | | — | | | — | | | (13,533) | | | — | | | (13,533) | |
Common dividends declared, $0.25 per share | — | | | — | | | — | | | — | | | — | | | (13,688) | | | (13,688) | | | — | | | (13,688) | |
Preferred dividends declared, $25.00 per share | — | | | — | | | — | | | — | | | — | | | (25) | | | (25) | | | — | | | (25) | |
Non-cash equity award compensation | — | | | — | | | 2,032 | | | — | | | — | | | — | | | 2,032 | | | — | | | 2,032 | |
Balance, September 30, 2021 | 53,789,465 | | | $ | 538 | | | $ | 1,037,395 | | | $ | — | | | $ | 164,055 | | | $ | (269,879) | | | $ | 932,109 | | | $ | 125 | | | $ | 932,234 | |
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) | | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, |
| | 2021 | | 2020 | | |
Cash Flows From Operating Activities: | | | | |
Net income (loss) | | $ | 60,890 | | | $ | (63,590) | | | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | |
Accretion of discounts and net deferred fees on loans held-for-investment and deferred interest capitalized to loans held-for-investment | | (20,310) | | | (12,557) | | | |
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 | | 9,692 | | | 4,646 | | | |
(Benefit from) provision for credit losses | | (15,072) | | | 62,241 | | | |
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Realized losses on sales of loans held-for-sale | | — | | | 16,913 | | | |
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Amortization of equity-based compensation | | 5,558 | | | 3,994 | | | |
Depreciation of fixed assets | | — | | | — | | | |
Net change in assets and liabilities: | | | | | | |
Decrease (increase) in accrued interest receivable | | 2,490 | | | (610) | | | |
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Increase in other assets | | (4,069) | | | (19,899) | | | |
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Increase in other liabilities | | 5,846 | | | 44,911 | | | |
| | | | | | |
Net cash provided by operating activities | | 45,025 | | | 36,049 | | | |
Cash Flows From Investing Activities: | | | | | | |
Originations, acquisitions and additional fundings of loans held-for-investment, net of deferred fees | | (549,705) | | | (314,722) | | | |
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Proceeds from repayment of loans held-for-investment | | 815,054 | | | 290,838 | | | |
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Increase in other assets, due from servicer/trustee on repayments of loans held-for-investment | | (66,944) | | | — | | | |
Principal payments on available-for-sale securities | | — | | | 12,798 | | | |
| | | | | | |
| | | | | | |
Principal payments on held-to-maturity securities | | — | | | 18,076 | | | |
| | | | | | |
Proceeds from sales of loans held-for-sale | | — | | | 193,538 | | | |
| | | | | | |
| | | | | | |
Net cash provided by investing activities | | 198,405 | | | 200,528 | | | |
| | | | | | |
Cash Flows From Financing Activities: | | | | | | |
Proceeds from repurchase facilities | | 347,261 | | | 397,004 | | | |
Principal payments on repurchase facilities | | (1,139,378) | | | (470,180) | | | |
Proceeds from issuance of securitized debt obligations | | 685,766 | | | — | | | |
Principal payments on securitized debt obligations | | (254,647) | | | (115,853) | | | |
Proceeds from senior secured term loan facilities | | — | | | 205,647 | | | |
Proceeds from asset-specific financings | | 2,785 | | | 6,626 | | | |
Repayment of asset-specific financings | | (81,123) | | | — | | | |
Proceeds from revolving credit facilities | | — | | | 38,361 | | | |
Repayment of revolving credit facilities | | — | | | (80,369) | | | |
Proceeds from term financing facility | | 349,291 | | | — | | | |
Repayment of term financing facility | | (219,311) | | | — | | | |
Payment of debt issuance costs | | (8,353) | | | — | | | |
Proceeds from issuance of warrants to purchase common stock | | — | | | 4,541 | | | |
Settlement of warrants to purchase common stock | | (7,478) | | | | | |
Contributions from non-controlling interests | | 125 | | | — | | | |
Tax withholding on restricted stock | | (1,194) | | | — | | | |
Repurchase of common stock | | (17,804) | | | — | | | |
Dividends paid on preferred stock | | (75) | | | (75) | | | |
Dividends paid on common stock | | (52,970) | | | (23,038) | | | |
Net cash used in financing activities | | (397,105) | | | (37,336) | | | |
Net (decrease) increase in cash, cash equivalents and restricted cash | | (153,675) | | | 199,241 | | | |
Cash, cash equivalents and restricted cash at beginning of period | | 329,193 | | | 159,764 | | | |
Cash, cash equivalents and restricted cash at end of period | | $ | 175,518 | | | $ | 359,005 | | | |
Supplemental Disclosure of Cash Flow Information: | | | | | | |
Cash paid for interest | | $ | 75,818 | | | $ | 83,366 | | | |
Cash paid for taxes | | $ | 607 | | | $ | — | | | |
Noncash Activities: | | | | | | |
| | | | | | |
Transfers of loans held-for-investment to loans held-for-sale | | $ | — | | | $ | 210,452 | | | |
Dividends declared but not paid at end of period | | $ | 13,713 | | | $ | 11,065 | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 1. Organization and Operations
Granite Point Mortgage Trust Inc. 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 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”. The Company operates its business in a manner that is intended to permit it to maintain its exclusion from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act. The Company operates its business as one segment. The Company was 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.
The Company was externally managed by Pine River Capital Management L.P., or the Former Manager, through December 31, 2020, 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 the 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 September 30, 2021 and results of operations for all periods presented have been made. The results of operations for the three and nine months ended September 30, 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.
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. As of September 30, 2021, the COVID-19
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
pandemic remains ongoing. Since the beginning of 2020, the pandemic has significantly impacted the global economy, created disruptions in the global supply chain, increased rates of unemployment and 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, to varying degrees, begun to improve, 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 the macroeconomic recovery, particularly with respect to the emergence of new variants of the COVID-19 virus, the continued distribution and acceptance of vaccines and the effectiveness of such vaccines against new variants of the COVID-19 virus. 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 economic activity and real estate market conditions, as well as 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 September 30, 2021. However, uncertainty over the ultimate impact the COVID-19 pandemic will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of September 30, 2021 inherently less certain than they would be absent the current and potential impacts of the COVID-19 pandemic. 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 and nine months ended September 30, 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, the Financial Accounting Standards Board, or 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 debt instruments, derivatives, and other contracts that reference LIBOR or other reference rates expected to be discontinued as a result of reference rate reform. This guidance is optional and may be elected through December 31, 2022 using a prospective application on all eligible contract modifications. The Company has loan agreements, and debt agreements that incorporate LIBOR as a referenced interest rate. It is difficult to predict what effect, if any, the phase-out of LIBOR and the use of alternative benchmarks may have on the Company’s business or on the overall financial markets. The Company has not adopted any of the optional expedients or exceptions through September 30, 2021, but will continue to evaluate the possible adoption of any such expedients or exceptions.
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
In August 2020, 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 (unaudited)
The following tables summarize the Company’s loans held-for-investment by asset type, property type and geographic location as of September 30, 2021 and December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 |
(dollars in thousands) | Senior Loans (1) | | Mezzanine Loans | | B-Notes | | Total |
Unpaid principal balance | $ | 3,657,401 | | | $ | 1,387 | | | $ | 14,065 | | | $ | 3,672,853 | |
Unamortized (discount) premium | (67) | | | — | | | — | | | (67) | |
Unamortized net deferred origination fees | (13,095) | | | — | | | — | | | (13,095) | |
Allowance for credit losses | (40,897) | | | (1,387) | | | (3,196) | | | (45,480) | |
Carrying value | $ | 3,603,342 | | | $ | — | | | $ | 10,869 | | | $ | 3,614,211 | |
Unfunded commitments | $ | 430,105 | | | $ | — | | | $ | — | | | $ | 430,105 | |
Number of loans | 98 | | | 1 | | | 1 | | | 100 | |
Weighted average coupon | 4.6 | % | | 13.0 | % | | 8.0 | % | | |