Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Granite Point Mortgage Trust Inc (GPMT, Financial) resolved four non-accrual loans with an aggregate principal balance of over $135 million, showcasing proactive asset management.
- The company has visibility on approximately $200 million to $300 million of more loan resolutions expected by the end of 2024.
- Improved market sentiment and increased transaction activity have contributed to better visibility on loan repayments and non-accrual resolutions.
- Granite Point Mortgage Trust Inc (GPMT) repurchased about 1.5 million of its common shares at a deep discount, benefiting book value by about $0.05 per share.
- The company maintains a diversified loan portfolio with a weighted average LTV at origination of 63.7% and a realized loan portfolio yield of about 7% for the second quarter.
Negative Points
- Granite Point Mortgage Trust Inc (GPMT) reported a second-quarter GAAP net loss of $66.7 million, including a provision for credit losses of $60.8 million.
- Distributable loss for the quarter was $9.1 million, reflecting loan write-offs and a decline in net interest income due to non-accrual loans.
- The company anticipates incurring over $100 million of write-offs over the next couple of quarters, impacting overall CECL reserve balance.
- Non-accrual loans accounted for over 20% of the portfolio as of quarter end, significantly impacting run rate profitability.
- The Board of Directors decided to reduce the quarterly common dividend to $0.05 per share due to the challenging credit environment and near-term pressure on earnings.
Q & A Highlights
Q: As you look out the second half of the year, any sense of where the loan portfolio might bottom out?
A: (Marcin Urbaszek, CFO) It's difficult to predict exactly, but we anticipate the portfolio to trend down by the end of the year. Some resolutions will positively impact run rate profitability. In the near term, distributable EPS may trail the dividend, but resolutions should improve profitability in the coming quarters.
Q: Does the anticipated $100 million of realized losses over the next period align with your portfolio and reserves?
A: (Marcin Urbaszek, CFO) Yes, we anticipate over $100 million in the coming quarters. We have visibility on additional resolutions, and while exact timing is hard to predict, we feel good about the overall trajectory.
Q: Can you talk about your comfort in resolving loans at or near the marks, given improving transparency on pricing?
A: (Marcin Urbaszek, CFO) We feel good about where we are in the near term for some assets in the pipeline to resolve by the end of the year. We try to be proactive with reserves as assets go through the process.
Q: How do you ensure that the current risk ratings reflect the problems and the pace of new problem asset formation?
A: (John Taylor, CEO) We are comfortable with the current risk ratings and have been proactive in moving things from a four to a five. While we expect some additional loans to migrate, we believe the market and our portfolio are towards the end of this stress period.
Q: How much financing do you currently have on non-accrual loans, and what is the rate on that cost of debt?
A: (Marcin Urbaszek, CFO) Non-accrual loans are mainly financed through various sources, including a $650 million NPL line over SOFR. Some assets are on different facilities, and REO is currently unlevered but will be financed to increase liquidity.
Q: How do you decide whether to provide financing on resolved loans?
A: (Stephen Alpart, CIO) It depends on the specific asset. Office assets may more likely need staple financing. Each case is different, but we consider providing financing based on the asset's characteristics and market conditions.
Q: What is the difference between the non-accruals in the 10-Q and the collateral-dependent loans?
A: (Marcin Urbaszek, CFO) The difference may be due to carrying value under non-accruals excluding reserves. The balance of non-accruals is about $660 million.
Q: Are the realized losses already reflected in book value, and where do you expect book value to trough?
A: (Marcin Urbaszek, CFO) The realized losses are reserved for already. It's hard to predict where book value might be, but we feel good about the current reserves and expect the balance of the CECL reserve to trend down from here.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
