Q1 2025 Granite Point Mortgage Trust Inc Earnings Call
[inaudible]
Paul: Good morning. My name is Paul and I will be your conference facilitator. At this time, I would like to welcome everyone to Granite Point Mortgage Trust's first quarter 2025 financial results conference call. All participants will be in a listen-only mode.
Speaker Change: After the speakers and marks, there will be a question and answer period. Please note, today's call is being recorded. I would now like to turn the call over to Chris Petta.
with Investor Relations for Granite Point.
Speaker Change: Thank you, and good morning, everyone. Thank you for joining our call to discuss Granite Point's first quarter, 2025 financial results. To be on the call this morning, or Jack Taylor, our President and Chief Executive Officer, Steve Alpart, a Chief Investment Officer, and co-head of Originations, Blake Johnson, a Chief Financial Officer, Peter Morale, a Chief Development Officer, and co-head of Originations, and Ethan Leibowitz, our Chief Operating Officer.
Jack Taylor: After my introductory comments, Jack will provide a brief recap of Marcin conditions and review our current business activities. Steve Alpart will discuss our portfolio, and Blake will highlight key items from our financial results and capitalization.
Jack Taylor: The press release, financial tables, and earning supplemental associated with today's call were filed yesterday with the SEC and are available in the Investor Relations section of our website, along with our form 10Q.
Jack Taylor: I would like to remind you that remarks made by management during this call and the supporting slides may include forward-looking statements, which are uncertain and outside of the company's control.
Jack Taylor: But we're looking statements reflect our views regarding future events and our subject to uncertainties and could cause actual results of different materially from expectations.
Jack Taylor: Please see our SEC filings for a discussion of some of the risks that could affect results. We do not undertake any obligation to update any forward-looking statements.
Jack Taylor: We also refer to certain non-GAAP measures on this call. This information is not intended to be considered a nice relation, or as a substitute for the financial information presented in accordance with GAP. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in our earnings release and slides.
Jack Taylor: Which are available on our website. Now I'll turn the call over to Jack.
Jack Taylor: Thank you, Chris, and good morning, everyone. We would like to welcome you, and thank you for joining us for Granite Point's first quarter 2025 earnings call.
Jack Taylor: Before discussing our first quarter results, I'd like to take a moment to briefly discuss our recent Chief Operating Officer transition from Stephen Plus to Eden Leibowitz, which was successfully completed on May 1st.
Jack Taylor: As was previously announced, this transition was initiated as Steve Express's desire to narrow and concentrate the scope of his business responsibilities going forward.
Jack Taylor: It has been in the industry for over 40 years, and I am proud to say that we've worked together for over 30 of those years. [inaudible]
Jack Taylor: At the same time, we are also very excited to have Ethan as our newly appointed Chief Operating Officer.
Jack Taylor: Ethan has been with the team since before Granite Point's inception, and I've worked with him for almost 20 years.
Jack Taylor: Even brings broad industry expertise, real estate acumen, and exceptional leadership capabilities.
Jack Taylor: I am confident that his deep understanding of our business and extensive history with our team makes Ethan the perfect fit to advance our initiatives and drive shareholder returns as our chief operating officer.
Jack Taylor: Now turning to the market, the beginning of 2025 showed continued improving sentiment for commercial real estate, with credits for as tightening, enhanced liquidity and greater transaction volume.
Jack Taylor: However, in the past month following the tariff announcements, there has been renewed uncertainty about the path of interest rates and heightened concern about the possibility of a recession and the possible effects of both on commercial real estate.
Jack Taylor: Well, this has introduced some caution amongst commercial real estate market participants.
Jack Taylor: It is too soon to tell how long this uncertainty will last and what the long-term impact of the tariffs will be.
Jack Taylor: Fortunately, commercial real estate is better positioned today as the activities over the past few years have resulted in a lower reset basis across most property types and markets.
Jack Taylor: Commercial real estate also compares favorably to other asset classes and industries as it represents a hard asset with intrinsic value and is a more defensive asset class during a period of uncertainty.
Jack Taylor: Despite the market turbulence, we've made significant progress on our goals and objectives. During the first quarter of 2025, we resolved two of the risk-graded five loans, both office boundaries, totally about $97 million.
Jack Taylor: Additionally, in the last week, we resolved two more risk-grated five loans. We resolved the mixed use asset located in Baton Rouge, Louisiana.
Jack Taylor: And we are pleased to share that the imminent resolution we wrote about in our press release yesterday with respect to the hotel asset located in Minneapolis did in fact closely yesterday.
Steve Alpart will discuss both in greater detail shortly.
Jack Taylor: All of these resolutions have decreased our risk-graded five won't count from seven at year end to three remaining today, as we have continued to make substantial progress on reducing our non-acrual loans.
Jack Taylor: While the improvement in liquidity in commercial real estate is now facing some headwinds, the commercial real estate debt markers are open and functioning with significant liquidity for the floating-rate bridge and transitional market sectors, from both direct and warehouse
Jack Taylor: As previously noted, we extended all three of our repurchase facilities for approximately one year.
Jack Taylor: We also continue to work with our rowers and have seen steady loan repayments at car, including in the office loan sector.
Jack Taylor: Year to date, we realized about 107 million of loan repayments, paydowns, and amortization.
Jack Taylor: As we manage both sides of the balance sheet, we continue to navigate this period of high uncertainty and market volatility by maintaining higher liquidity, extending debt and engaging in other value enhancing activities.
Jack Taylor: To that point, we have also opportunistically deployed capital into our own securities.
Jack Taylor: During the first quarter, we repurchased about 900,000 of our common shares.
Jack Taylor: It is our view that the current market price does not reflect the value of the business, nor the progress we have made to date, including the pace of our loan resolutions and our ongoing pace of repayments, despite recent headwinds.
Jack Taylor: We currently have about 3.9 million shares remaining under our existing authorization and we intend to remain opportunistic with respect to any future by-back activity.
Jack Taylor: We anticipate that with the continued resolutions and repayments, we will further pay down our remaining expensive debt, and will be positioned to return to new original nations in the latter part of the year, all of which will improve our run rate profitability and earnings over time.
Jack Taylor: I would not like to turn the call over to Steve Alpart to discuss our portfolio activities in more detail.
Steve Alpart: Thank you, Jack, and thank you all for joining our first quarter earnings call.
Steve Alpart: Before providing our business update, I'd like to congratulate Ethan Leibowitz on his recent promotion to Chief Operating Officer.
Steve Alpart: Ethan is the ideal person to fill Steve's role and will be an excellent addition to the executive team and investment committee.
Now, turning to our business. [inaudible]
Steve Alpart: We ended the first quarter with $2 billion in total loan portfolio commitments and $1.9 billion in outstanding principal balance.
Steve Alpart: with about 93 million of future fundings, which accounts for only about 5% of total commitments.
Steve Alpart: Our loan portfolio remains well-diversified across regions and property types and includes 50 investments with an average UPB of about 39 million and a weighted average stabilized LTV of 54% at a regination.
Steve Alpart: As of March 31st, our portfolio weighted average risk rating improved slightly to 3.0 with no negative credit migration during the quarter.
Steve Alpart: The realized loan portfolio yield for the first quarter was 6.8%, which excluding non-accrual loans would be 8.5% or 1.7% higher.
Steve Alpart: The prior quarter realized loan portfolio yield was 6.6 percent, and excluding non-accrual loans was 8.8 percent, or 2.2 percent higher. [inaudible]
Steve Alpart: The improvement in our overall loan portfolio yield of about 20 basis points is due to the lower amount of non accrual loans relative to the total loan portfolio, partially offset by lower sulfur.
Steve Alpart: We had an active first quarter of loan repayments, pay downs, and resolutions totaling about 172 million, including the par payoff of an office loan.
and funded about $10 million on existing loan commitments.
resulting in a net loan portfolio reduction of 161 million.
Steve Alpart: During the first quarter, we successfully resolved two non-acrual loans totaling about 97 million U.P.B.
Steve Alpart: As previously disclosed, we took title to the office property in Miami Beach, which had been securing a $71 million dollar loan.
Steve Alpart: Additionally, the Boston CBD office property securing a $26 million loan was sold by the borrower in February .
Steve Alpart: Even our emphasis on resolving our remaining non-accrual loans, we expect our loan portfolio balance to trend lower in the coming quarters.
Steve Alpart: So far in the second quarter, we have funded about 3 million of existing loan commitments and received about 32 million in full repayments on two additional office loans, which we note were repaid while the markets were in flux from the announcement of the tariff policies.
Steve Alpart: Additionally, we resolved two loans totaling about $132 million in U.P.P. [inaudible]
Steve Alpart: Now, we'd like to provide some color on the risk-graded five laws.
Steve Alpart: And March 31st, we had five such loans with a total UPB of about 355 million.
Steve Alpart: In May, we modified the loan secured by a hotel property located in Minneapolis, Minnesota.
Steve Alpart: As of March 31, 2025, the loan was on non-accrual status with an unpaid principle balance of about 52 million and had a risk rating of 5.
Steve Alpart: The modification restructured the loan into a $37 million senior and a $15 million subordinate note with the borrower investing additional equity in the property.
Steve Alpart: As a result of the modification, the resized senior loan will be classified as performing, and the supportant loan has been fully reserved through the previously recorded allowance.
Steve Alpart: Also in May, we resolved the loan secured by the Mixed Use Office of Retail Property located in Baton Rouge, Louisiana via a property sale.
Steve Alpart: As of March 31st, 2025, the loan was unnonacrual status with an unpaid principal balance of about 80 million and a risk rating of 5.
Steve Alpart: As a result of this resolution, we expect to realize a write-off of about 22 million, which previously had been reserved for through a recorded allowance.
Steve Alpart: As a result of these two resolutions, we currently have three remaining non-accrual loans rated five with a balance of about 223 million.
Steve Alpart: The process for the office property securing our $80 million dollar loan in Chicago remains ongoing and should conclude over the next couple of quarters, likely through a sale of the property.
Steve Alpart: The resolution of the $50 million loan secured by a student housing property in Louisville, Kentucky remains ongoing and should conclude over the next couple of quarters also likely through a sale of the property.
Steve Alpart: As previously mentioned, we anticipated a longer resolution timeline for our $93 million loan in Minneapolis given the persistent local market challenges.
Steve Alpart: Resolving these remaining five-rated loans continues to be one of our top priorities.
Steve Alpart: Turning to our three REO assets, the Phoenix Office property is under contract for sale with a hard deposit and a targeted closing in the coming months.
Steve Alpart: We've had a number of positive leasing successes at the suburban Boston property and we are actively working with our partner and the local jurisdiction on several value enhancing redevelopment opportunities.
Steve Alpart: The Miami Beach Office property is a class A asset located in a strong submarket.
Steve Alpart: We are reviewing potential resolution alternatives and are in active leasing discussions with a variety of tenants.
Steve Alpart: The REO property serves as a potential sources of additional liquidity which we may access in the coming months.
Steve Alpart: In the near term, we will continue to prioritize maintaining higher liquidity which can allow more optionality to maximize value on these resolutions.
Steve Alpart: With respect to new business, our season's origination team remains actively in touch with our borrower and brokerage networks, and we expect to begin originating new loans later in 2025.
Steve Alpart: I will now turn the call over to Blake to discuss our financial results and capitalization.
Blake Johnson: Thank you, Steve. Good morning, everyone, and thank you for joining us today.
Turning to our financial results.
Blake Johnson: For the first quarter, we reported a gap net loss of 10.6 million, or negative 22 cents per basic common share, which includes a provision for credit losses of 3.8 million, or negative 8 cents per basic common share, mainly related to collateral dependent loans.
Blake Johnson: Distributable loss for the quarter was 27.7 million or negative 57 cents per basic common share, including write-offs of 24.6 million or negative 51 cents per basic common share, which were largely previously reserved for.
Blake Johnson: The write-ups are related to the two non-accrual loan resolutions that Steve discussed earlier.
Our book failure at March 31st.
Blake Johnson: With $8.24 per common share, a decline of about 23 cents per share from Q4.
Blake Johnson: which was primarily due to our gap net loss to common.
Partially upset by the accretive share buybacks.
Blake Johnson: which we estimate benefited book value by about ten cents per common share.
Blake Johnson: Our aggregate Cecil Reserve at March 31st was about $180 million or $3.72 per common share as compared to $201 million less quarter or $4.12 per common share.
Blake Johnson: Approximately 75% of our total allowance, or 134 million, is allocated to individually assessed loans.
Blake Johnson: With the two resolutions that occurred subsequent to quarter-end, we expect to recognize a realized write-off of approximately 37 million, which we previously reserved for in our allowance.
Blake Johnson: We believe we are a properly reserved for, and further resolutions should meaningfully reduce our total Cecil reserve balance.
Blake Johnson: As of today, we have about 223 million of principal balance on three loans on non-accrual status. All three of these loans are on cost recovery and any incoming interest is applied to reduce loan principal rather than being recognized in earnings.
Blake Johnson: We anticipate the run rate profitability of the company to improve. As we continue to resolve non-earning assets, repay expensive debt, and reinvest our capital over time. Go the exact timing and magnitude remain difficult to predict, and will also be dependent on the volume of loan repayments and the level of short-term interest rates.
Our funding mix remains well-diversified and stable.
Blake Johnson: And we continue to have very constructive relationships with our finance and counter parties, who know our assets very well, as evidenced by the recent extensions of our repo facilities.
Blake Johnson: We expect to expand our financing capacity once we return to originating new loans more actively.
Blake Johnson: As of a few days ago, we carried about 86 million in cash, that we expect to increase in the near term from further loan repayments and potential financing of our REOL assets.
Blake Johnson: I will now ask the operator to open the line for questions.
Speaker Change: Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone key, then.
Blake Johnson: A confirmation John will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.
One moment please while we pull for questions.
Our first question is from Doug Harter with UBS.
Speaker Change: Thanks. You mentioned potentially starting originations back up in the second half of the year.
Blake Johnson: You have been active in buying backstock, but given the current discount to book, how do you think about maybe accelerating the pace of buyback versus originating new loans?
Blake Johnson: Hey, Doug, this is Jack. Thank you for joining us this morning. It is a balance that we have to strike. Right now, we're...
in a mode of having...
Blake Johnson: A preservation of liquidity and directing what liquidity we do have has been put towards stock bye-bye
And we don't...
Speaker Change: You know, directly comment on our potential buybacks, but I'll point out that we've been fairly active in it, and we have authorization for another $3.9 million as we reported week, block back about 900,000 of our comment in the last quarter.
Speaker Change: So, our flexibility is to continue with that and then later in the year to balance it further against new originations, which would be, as we have said, in the back end of the year.
Oh, great. Appreciate that, Jack.
Speaker Change: assess the any event risk whether that's maturity or other...
Speaker Change: Lisa Explorations or anything like that, that could potentially lead to downgrades on threes or fours, that would kind of two problem assets.
Steve Alpartney, Doug, and Steve Alpart, good morning. Hope you're well.
Speaker Change: So just at high level I mean the majority of the portfolio has been performing well and as we just talked about we continue to work through these loan resolutions which mainly relate to the office sector and the effective elevated rates.
Speaker Change: We do have more work to do, but as we just talked about, we're pleased with all the resolutions we've had in 2024 and the ones we've had so far year to date in 2025, with no negative credit migration in the first quarter. [inaudible]
And only one rating change overall, which was an upgrade.
Speaker Change: As far as the four rated loans, they're all behind on business plan. Some of them have been affected by the local market.
Speaker Change: Other factors. We're watching all of them carefully. We're working with all those sponsors.
Speaker Change: It's always possible that there could be negative credit migration, but we also hope to have positive credit migration as we've had in the past. And that relates to both the fours and the threes, but we're comfortable with where they're marked today.
Great. Thank you.
Our next question is from Steve DeLaney with Citizens JMP.
Steve DeLaney: Good morning, everyone. Thanks for taking the question. I do want to applaud the Bob back. I know you can't.
Speaker Change: Do it so much, but every little bit helps. So as you can stick with that is as conditions allow, for two figures mentioned dollar amounts.
Speaker Change: for write-offs or realized losses. I think someone mentioned a $22 million write-off in 2G25. And then furthering comments, I heard a $37 million realized loss.
Speaker Change: Could you just clarify those two, did I hear those items right? And can you clarify for the expected timing of when the 22 and the 37 would actually be realized in, you know, in your distribution of the APS. Thanks. Thanks.
Good morning, thank you for your questions.
[inaudible]
I'll end with the service part. It's $37 million.
Okay. Hey Blake, we can't hear you. It could speak up. Yeah.
Blake Johnson: I apologize about that. Good morning, Steve. Thank you for the question.
Blake Johnson: So the two write-ups that occurred subsequent to a quarter end, that is actually what was equal to that 37 million. And included in that 37, correct. And included in that 37 million was 22 million related to one resolution and around 15.4, related to the second.
Blake Johnson: Got it. So a 22 and a 15 excellent. And with these resolved, how many five rated loans remain after these two have been resolved?
Blake Johnson: Yes, so as of 331, we had 5 outstanding, and then as of at these 2 resolutions, the curve will have 3 outstanding.
Only three. Okay, excellent.
Blake Johnson: Okay, that's what I had. I appreciate the comments that's clear about it.
Thank you. Thank you for joining, Steve.
Our next question is from Jade Rahmani with KBW.
Speaker Change: Thank you very much. The portfolio currently has 0.6 years of remaining term to maturity, so that implies nearly all loans in the portfolio should reach maturity this year. Is that correct?
Speaker Change: Hey, Jade, it's Steve. That is not correct. There's loans that are maturing in 25, there's loans maturing in 26.
Speaker Change: That's probably the majority of it, and there's a few that go out a little further into 27. There's a couple that are a little longer data piece of the paper, but it's a mix of 25, 26, and then some into 27 and beyond.
Speaker Change: Okay, do you know generally what percentage? By the way, that statistic is from the 10Q, so I don't know if anything needs to be up there. I don't know if that's true or not.
Blake Johnson: Hey, Jade, this is Blake. If you go to the table, there's actually a helpful footnote at the bottom of it. That actual point six is based on the contractual maturity date. So if you look at certain loans or subject to certain contractual extension options, and that is now included here.
Okay.
Speaker Change: So do you know what percentage of the portfolio matures in 2025?
Steve DeLaney: Yeah, so if you look at it, Jade, and Steve, if you look at it in terms of fully extended maturity date, which is what my comment relates to, it's probably a little over 20% of the portfolio has a final maturity in 2025.
Okay.
Steve DeLaney: And if we begin to that, some of those are the five rated loans that we've talked about. There's other loans in there that are expected to pay off.
Steve DeLaney: Some of them will extend as a right, and then others, if we don't have a payoff, we are having conversations with those borrowers, but that's a little early for that right now.
Speaker Change: Okay. I've been looking at the commercial mortgage REITs and their approach toward Cecil Reserves, and it's clear that...
The company's heavily reserved on risk-five rated loans.
Speaker Change: Then they take very low reserve on risk for rated loans and almost nothing on everything else in contrast to banks. So, could you say what the reserve is on the risk for rated loans?
Right now, the total allowance is 177.3 million.
What dollar amount relates to risk for rated loss? [inaudible]
Blake, do you want to answer that? [inaudible]
Yeah, sure. I could take that.
Speaker Change: So if you actually look at our risk-graded four loans, it's around 13.1 million as of quarter-end.
Okay.
on what balance of loans for that related.
share 174.
Okay.
Thank you. Bye-bye.
Speaker Change: So 13.1 over 174. So that's a 7.5% reserve. Better than the, so 13.1 million on, did you say 174 million?
Yes.
Speaker Change: You identified the realized losses that would be expected in the second quarter, but do you expect any incremental loan loss provisions?
Speaker Change: As far as I see cyclicals, this actually happens at quarter-end, so we go through a full assessment. We get to the end of the month of June , and we haven't yet done that. As far as whether we expect to have incremental losses, it's too early to tell we can have incremental gains or losses. It really depends on the actual forecast we lose in our general reserve modeling, and also additional information that we obtain on the collateral dependent loans. Thank you very much.
Okay. The Miami office that you're taking R.E.O.
That's a 2016 vintage, so I mean… [inaudible]
Speaker Change: Can you just give any color as to whether the asset produces any income? My aim is the pretty strong market, so what the issues are there.
Just some commentary around that.
Speaker Change: Sure, so as a quarter end, we actually have three properties that are on our books as Oreo.
Speaker Change: And then when you look at the individual assets, I would say on a combined basis we do expect positive NOI. So I would say roughly around 225 a quarter. When you look at our earnings, it's a little bit different, just NOI is a non-gab measure. And if you look at our earnings, it shows a loss and it's larger because of the depreciation.
Speaker Change: But I think maybe Steve, you could, I think your question is... Yeah, I think it's a follow-up answer.
Speaker Change: Oh, you go ahead. I was going to ask you to do so.
Speaker Change: Oh, sure. So it could say it's a high quality, classic property in a strong market. It's got a lot of potential.
Speaker Change: The issue here was really Jade around the prior owner who had distressed in their larger portfolio. They guess we're not able to invest in this property or execute the business plan due to those issues.
Speaker Change: Marcin Urbaszek, I think he alluded to. It's got compelling fundamentals. We thought this, you know, this one made sense to take back.
Speaker Change: We're actively reviewing potential resolution alternatives. We're an active leasing discussions with a bunch of tenants and we'll have more to share on that in the coming quarters.
Thanks for watching!
Okay, do you know what the basis is?
That you'll be taking it into Ariel.
Blake Johnson: Yeah, we did do that in Blake if you would have done that.
The basis like price per square foot.
Speaker Change: I don't have that handy, so the total number that we actually put on our book is 72.5 million. I don't know if Steve you have that handy.
Speaker Change: I believe we do disclose the square footage, right? So... We can come back to you on that if it's
Speaker Change: I mean, do you think it's reasonable that there could be a gain in that property? If it's class A, the prior owner didn't invest in it, you're in discussions with a bunch of tenants, potential tenants.
Speaker Change: The answer is depending on the resolution, path, and timing, yes.
Okay.
Great. Well, thanks for taking the questions.
Great, thank you, Jade. We appreciate your time.
Speaker Change: Thank you. There are no further questions at this time. I'd like to hand the floor back over to Jack Taylor for any closing comments.
Jack Taylor: Well, we're very pleased with the progress we've made and we very much appreciate all the attention and time and focus that you all have shown to our company and support and we look forward to reporting to you in the next quarter. Thank you very much.
Jack Taylor: This concludes today's call. You may disconnect your lines at this time. Thank you for your participation.