Q2 2025 Granite Point Mortgage Trust Inc Earnings Call
Good morning. My name is Robin. I'm your conference of facilitator.
At this time, I'd like to welcome everyone to Granite Point. Mortgage trusts second quarter, 2025 Financial results conference call.
All participants will be on a listen-only mode.
After the speaker is remarked, there'll 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 pennet with investor relations for Granite Point.
Thank you and good morning everyone. Thank you for joining our call to discuss Granite points. Second quarter, 2025 Financial results with me on the call. This morning are Jack Taylor, our president and Chief Executive Officer, Steve alpart, our chief investment officer and co-head of originations Blake Johnson, our Chief Financial Officer, Peter morale, our chief development officer and co-head of originations and Ethan Lieutenant our chief operating officer.
After my introductory comments, Jack will provide a brief recap of market conditions and review our current business activities.
Steve Alpart will discuss our portfolio, and Blake Johnson will highlight key items from our financial results and capitalization.
The press release financial tables and earning supplemental. Associated with today's call, we're filed yesterday with the SEC and are available in the investor relations section of our website along with our form 10q. I would like to remind that
Remarks made by management during this call. And the supporting slides may include following looking statements which are uncertain and outside of the company's control forward looking statements, reflect our views regarding future events and are subject to uncertainties that could cause actual results to differ materially from expectations.
Please see our filings with the SEC for a discussion of some of our risks. That could affect results. We do not undertake any obligation to update any forward-looking statements,
We also refer to certain non-gaap measures on this call. This information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with gaap.
A Reconciliation of these non-gaap Financial measures to the most comparable. Gaap measure can be found in our earnings release and slides, which are available on our website. I'll now turn the call over to Jack
Thank you, Chris and good morning. Everyone. We would like to welcome you and thank you for joining us. For granted points, second quarter 2025 earnings call.
First, before turning to our results, we would like to express our condolences to the families and friends of those who lost their lives at 345 Park Avenue last week.
Our thoughts are with all who were impacted including our friends and colleagues at Blackstone Rudin management KPMG as well as the NFL and the heroes of the New York Police Department.
We share a particular grief and heartbreak over the passing of Wesley Lepatner.
As friends.
The passing of such an exceptional and giving person is a tremendous loss to all who knew her.
Now, turning to our earnings.
During the first half of 2025, we saw continued Improvement in sentiment and liquidity in the commercial real estate market. As refinancing activity, notably increased and sales transaction, volume ticked off with more and more participants willing to transact in the market.
Although the commercial real estate lending Market recovery had initially stalled, post Liberation day with credit Market, spreads widening to the uncertain impact of looming terrorists.
Since then, there has been a resumption of the recovery with the stabilization of spreads and associated improving liquidity.
Cmvs issuers, have been originating at a strong Pace commercial banks are actively pursuing Warehouse, lending opportunities. And the transitional floating rate. Lending Market has continued to strengthen across most property types with the ability to land at a reset basis.
So far in 2025, we have continued to meaningfully, reduce our risk rated 5 loans.
After quarter end, the Louisville student housing loan was resolved at over 3, million above the carrying value.
A majority of the total proceeds from this resolution have been applied to reduce higher-cost debt.
With this and earlier resolutions, we have decreased our risk, rated 5 loan, count from 7 at year, end to 2 remaining today.
Significantly reducing the impact of non-accrual assets on our earnings and de-risking our portfolio.
Also we sold an office arroz asset leaving just 2 Aro, properties remaining.
We are pleased with these ongoing asset resolutions and the successful reduction of higher cost debt, both of which are key elements of our business strategy, creating a positive path forward for the company.
As previously noted in our press releases we extended our 3 rep purchase facilities during the second quarter for approximately 1 year and during July, we extended the maturity of our secured. Credit facility from December 2025 to December 2026
As part of the secured credit facility extension, we reduced the financing spread by 75 basis points and the outstanding borrower by 7 and 1/2 million dollars.
We also continue to work with our prowers and have seen ongoing loan repayments, including the full repayment of two office loans during the second quarter.
Year to date. We have realized about 109 million of loan. Repayments pay downs and amortization.
as we proactively manage the balance sheet, we are maintaining higher liquidity, extending our financing and engaging in other value, enhancing activities,
To that point, we have again opportunistically deployed capital into our own security.
During the second quarter, we repurchased 1.25 million shares of our common stock.
It is our view that our current market price relative to book value does not reflect the value of the business or the progress. We have made today, including the pace of asset resolutions and the past 12 months and our ongoing pace of repayments.
We have about 2.6 million shares remaining under our existing authorization for buyback and we intend to remain opportunistic with respect to any future buyback activity.
We expect the investment opportunities to expand over time and with our continued repayments resolutions and Aro sales and for their pay down of our remaining higher cost debt. We will be positioned to start new originations again for the first phase of the regrowth of the portfolio, all of which will improve our run rate profitability.
I would not like to turn the call over to Steve alpart to discuss our portfolio activities in more detail.
Thank you Jack, and thank you all for joining. Our second quarter earnings call.
We ended the second quarter with 1.9 billion in total loan commitments and 1.8 billion in outstanding principal balance with about 78 million in future funding, which accounts for only about 4% of total commitments.
Our loan portfolio remains well, Diversified across regions and property types and includes 47 Investments with an average upb of about 39 million and a weighted average stabilized LTV of 65%.
As of June 30th, our portfolio weighted average risk rating improved slightly to 2.8 due to ongoing loan resolutions and no negative credit migration during the quarter.
2% or 1.1% higher.
The prior quarter realized loan portfolio, yield was 6.8% and excluding non-accrual loans was 8.5% or 1.7% higher for that quarter.
The improvement in our overall loan yield of about 30 basis points is due to the reduced proportion of non-accrual loans in our portfolio.
We had an active second quarter of loan repayments, partial pay downs and resolutions totaling about 128 million, including 2, par payoffs of office, loans and funded about 13 million on existing loan. Commitments resulting in a net loan portfolio, reduction of 115 million
During the second quarter, we successfully resolved 2 non-accrual loans, totaling about $132 million in UPB.
As previously disclosed the 79 million loans secured by the Baton Rouge, mixed-use office, and Retail property was resolved, via a property sale, resulting in a realized write-off of about 21 million, which was previously reserved for through the recorded allowance for credit losses.
The second resolution. Also, previously, disclosed was a 52 million loan secured by a Minneapolis Hotel loan.
Which was resolved via a loan restructuring and modification.
The loan was bifurcated into a 37 million, senior loan, and a $15 million subordinate loan, with the sponsor, investing new Equity, into the asset.
As a result of this resolution, we realized a write-off of about 15 million, which was previously reserved for through the recorded allowance for credit losses.
Now, we'd like to provide some color on the risk-rated 5 loans.
At June 30th. We had 3 such loans with a total upb of about 223 million.
In July, we resolved the loan secured by the student housing property. Located in Louisville Kentucky, buy a property sale coordinated with the borrower,
As of June 30th, 2025, the loan was on non-accrual status with an unpaid principal balance of about 50 million and a risk rating of 5.
As a result of this resolution, we expect to realize a write-off of about 19 million which previously had been reserved for through a recorded allowance.
As a result of these resolutions, we currently have 2 remaining 5 rated loans with a balance of about 173 million.
The process for the office property, securing the eighty Million Dollar Loan in Chicago remains ongoing and to conclude by year, end likely through a property sale.
as previously mentioned, we anticipate a longer resolution timeline for our 93 million Loan in Minneapolis, given the persistent local market challenges,
Resolving. These remaining 5, rated loans continues to be 1 of our top priorities.
Turning to our REO assets on our last earnings call. We indicated that the Phoenix office property was under contract with a hard deposit that transaction closed as expected. During the second quarter at a sale price of 16.7 million, which resulted in the gain of 0.3 million or 1 cent per basic, share leaving 2 remaining row properties.
We've had a number of positive leasing successes at the Suburban Boston property.
And we are actively working with our partner and local jurisdiction on several value-enhancing redevelopment opportunities.
The Miami Beach office property is a class, A asset located in a strong Market. We are an active and productive leasing discussions with a variety of tenants and are reviewing potential resolution alternatives.
As we've said in prior quarters, our plan for 2025 has been to remain focused on loan and REO resolutions and maintaining higher levels of liquidity.
As a result, we expect that our portfolio balance will Trend lower in the third and fourth quarters.
We expect to return to our core lending business and restart our origination efforts as we approach the end of this year, and into early next year, to take advantage of attractive investment opportunities and begin to regrow our portfolio in 2026.
We'll assess the exact timing based on a variety of factors.
Fortunately, we have almost the entire originations and underwriting team intact from when we were originating 1 and a half to 2 billion dollars a year.
I will now turn the call over to Blake to discuss our financial results and capitalization.
Relative to the prior quarter.
Distributable loss for the quarter was $45.3 million, or negative $0.94 per basic common share, including write-offs of $36.1 million, or negative $0.75 per basic common share, which were previously reserved for.
The write-offs were related to 2 non-accrual loan resolutions at Steve discussed earlier. Our book value at June 30th was $7.99 per common. Share a decline of about 25 cents from q1 which is primarily due to our gaap. Net loss to Common. Partially offset by the accretive share BuyBacks, which we estimate benefited Book value by roughly 15 cents per common share.
Our aggregate Cecil Reserve at June 30th was about 155 million as compared to 180 million last quarter, the 25 million Decline and our Cecil Reserve was driven by 36 million of write-offs related to the 2 resolution. Partially offset by an increase from provision for credit losses, of 11 million primarily from the change. In our general Reserve,
Approximately 63% of our total allowance or about 98 million is allocated to individually assessed loans with the 1. Resolution that occurred subsequent to quarter end. We expect to recognize a realized write-off of approximately 19 million which we reserve for through a previously recorded, 23 million allowance for credit losses. And as a result, we expect to recognize a gap benefit of approximately 3 million in the third quarter. We believe We Are appropriately reserved for and further resolutions should meaningfully
Introduce our total cease of Reserve balance.
As of quarter end, we had about 223 million of principal balance. On 3 loans on non-accrual status.
All 3 of these loans were on cost recovery and any incoming, interest was applied to reduce loan principal rather than being recognized in earnings.
With the resolution that occurred subsequent to quarter end the principal balance of the 2 remaining. Non-accrual loans is approximately 173 million with a specific. Cecil reserve of roughly 75 million representing 43% of the unpaid principal balance.
We anticipate the Run rate profitability of the company to improve as we continue to do, resolve non-earning assets, repay high-cost debt, and reinvest our Capital over time. So the exact timing and magnitude remains difficult to predict.
Turning to liquidity and capitalization, we ended the quarter with about $85 million of unrestricted cash, and total leverage decreased slightly relative to the prior quarter to 2.1 times.
As of a few days ago, we carried around 73 million in cash.
our funding mix remains well Diversified and stable and we continue to have very constructive relationships with their financing counterparties who know our assets very well as evidenced by the extensions of our 3 Rebel facilities during the second quarter and the extension of our secure credit facility subsequent to quarter end
We expect to expand our financing capacity. Once we return to originating new loans, more actively, I will now ask the operator to open the line for questions.
Thank you. We'll now be conducting the question and answer session.
If you'd like to ask a question today, please press star 1 from your telephone keypad and a confirmation tone. Indicate your lines in the question queue.
You may press star 2. If you'd like to withdraw your question from the Kia,
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
1 moment, please. Will you call for questions? Thank you.
Thank you. Our first question comes from the line of Doug harder with UBS.
Please receive your questions.
Good morning. It's actually Marissa Lobo on for Doug today. Thank you for taking my questions. Um, on the topic of resolution of remaining assets. Um could you share your outlook on um the 4 loans that are in the 4 rated bucket as well and and any thoughts on timing of um resolution there,
Hey Marissa. It's Steve al parque. Good morning, thanks for joining the call this morning. Um, so with respect to the fours that you asked about, um, I would say high level. Um, they're all behind on business plan or affected by uh, the local market or other factors. Uh, we're monitoring each of them. Uh, we're actively working with, uh, each of the sponsors, uh, similar to the 5 rated.
Loans that we just talked about were focused on resolving all of them, um, as soon as possible.
Schedules. We're working with all the sponsors, um, in the in the case of the hotel. Uh, the sponsor is currently exploring a recap, or a sale.
Um, so I guess, high level, we're working with all the sponsors on next steps. Um, and, uh, we'll keep you posted over the coming quarters.
Okay, great. Thank you for that. Um and then just a little more color on on the reason for the general Reserve, increase some, you know what, what primarily were you looking at their?
Uh, good morning, Marissa. This is Blake. Thank you for the...
General Reserve went up roughly around $11 million during the quarter. The primary driver here was an update to the actual economic forecasts that we use in our CECL model. We use a model developed by TRIP, and the actual forecast was less favorable relative to the previous quarter. The primary driver for that was actually a decrease in what their expectation is for the CRA Price Index.
The next question is from the line of Jade. Romani with KBW, please just use your questions.
Thanks very much, can you?
Can you comment on your outlook for originations? Do you plan to restart originations in the third quarter or in the fourth quarter? Any quantum of magnitude? And then for next year, what would you expect full-year originations to look like?
Uh, hey Jay uh, good morning. It's Steve, thanks for joining the call.
Um, so great question. Um, as we just said in our prepared remarks, uh, we are expecting to return to our core lending business and restarting origination efforts. Um, as we get into the end of the year, uh, an early next year, uh, we are seeing a very interesting uh increasing attractive uh investment opportunities. Uh, we want to begin to regrow our portfolio uh really in 2026.
Um, we also said that the, the timing of the pace will be dependent on um, asset resolutions, uh repayments REO sales. Uh so the exact timing is is hard to predict. Uh but based on what we know today, uh we expect to start quoting in the fourth quarter and start closing new loans, possibly late this year. More likely probably early 2026. As I just mentioned the exact timing will kind of assess as we get later in the year into later, in the third into the fourth quarter. Um, uh, so that's that's the timing. Um, uh, Jack, do you want to take 2026 forecasts or yes? Thank you. Thank you.
Thank you. Hi Jade. It's Jack. I'm sorry. I got a sore throat and head cold. My voice is a little scratchy. Um,
Yeah, it's we will be balancing uh, various uses of capital through uh, a number of things, but we, we are going to lean into more of the origination side. And I I think it it's if you
Were to Ballpark, and I'd say, we'd be, you know, 750 million in a billion in originations through the course of uh and the 25 into the end of 26.
Oh, wow, that's great. Um,
And then just, uh, you know, broadly speaking.
Um, what trends are you seeing, uh, in the, you know, uh, outside of your focus list assets, your watch list Assets in the office portfolio? Um, I mean, do you expect for the deterioration?
In some of those office Properties or is your view more positive and you feel like you've identified uh the issues and you're maybe seeing an uptick in prospects for that portfolio. Just the broader comment on
Trends there.
Hey, Jade. It's it's Steve again. Um so I think you're asking about our specific assets. Um, so I'll kind of lean into that. Um, so we're we're obviously very focused on this. Uh, just given the the headwinds in the sector. Uh, we are seeing uh I guess I would call generally slow, but steady Improvement in office leasing in many markets. Uh, we're seeing capital
Slow slowly returning to the sector. Uh, particularly in the debt markets. Uh, the Tariff impact, um, seemed like it had some impact on tenant decision-making. So I, I guess that feels like, that's a bit of an overhang. But, um,
It seems soft like the sector is is pushing forward um uh before the Tower of announcements. Um we have been seeing a lot of momentum in in return to office.
Part of the market in many markets. Um,
Uh, despite the hiccup that we saw after Liberation Day, that trend seems to be continuing.
Um, so I guess I would characterize it as as slow, but steady progress, um, uh or portfolio continues to be very Diversified. Um, uh, fortunately, we're not in most of the markets that are the most impacted, but none of that is to say that there's not, you know, challenges ahead. So this is a, a big part of our Focus.
Um, you know, most of our assets I would characterize as as class a um, or or or, you know, recently renovated. Uh, so we feel like that the product that we have in our portfolio is is the right product. Um, I just mentioned the debt Market rebounding is is helpful in terms of liquidity and her in terms of resolution. Um, so we're, we're encouraged with the progress. Uh, we're encouraged with the reduction in the 5 rated loans. Uh, we have more work to do.
um and you know, that'll be a focus, you know, the next couple of quarters
Thanks.
All right. Next question. Thank you. Our next question is from the line of Chris smaller with JMP Securities, please. See with your questions
Hey guys, thanks for taking the questions and nice progress on the resolutions. Um, so I guess piggybacking on Jade's question on new lending. Um, how long does it take to rebuild that Pipeline and are you guys actively looking at loans right now? So that when you make that decision to start new lending, you can kind of hit the ground running.
Uh, great questions. Um,
We have a big network of borrowers and Brokers. Um, so we're we're in touch with them. Uh, we're also very direct and upfront with our counterparties so we're we're not we're not putting out quotes just to miss. Um, so we're we're in touch with the market. What we are? We are currently not actively quoting. Um, I think I mentioned not a prior question that we would expect to begin quoting. Um, later this year, most likely in the fourth quarter, um, as far as how long it takes to kind of turn the engine back on, um, I, I don't think it's, it's, you know, a switch. Uh, but, you know, uh, we have a, we have a, you know, we have the whole most of the team is here, right? So we have all the contacts, all the relationships. So it, it'll, it'll take a little bit of time, but it's not, it's not flipping a switch, but it won't take months and months, right? So it's just a matter of doing Outreach. We're going to be very targeted on what we're looking for. Um, so it'll be a short process. I think to get that up and running.
Got it and then I guess given the comments. Um, about expected portfolio decline in the back half of the year. Is it likely that distributable? EPS X losses comes in below the dividend until you guys start originating again.
Uh, hi. Good morning Chris. This is Blake. Thank you for the question. Yes. I would expect the actual, uh, D to be below the dividend for just a period of time, um, until we start actually rebuilding our book. So we will uh continue to see it below for a while.
Got it. I that was all I had. Thanks for taking the question.
Thank you. Thank you.
Thank you at this time. I'll turn the floor back to Jack Taylor for closing comments.
Well, thank you everybody for joining us. Uh, we are very pleased with our progress and uh, we are on track to continue that the Marcus remained uncertain uh, as uh,
We all are aware. But it is on a reliant basis and, and a healing basis that we intend to move forward, uh, with, uh, the the market progress itself and also our own, uh, efforts of our team. Working very hard to uh, enable uh, this progress. So, thank you for your time and attention today. Thank you.
This will conclude today's conference. May disconnect your lines at this time and thank you for your participation. Have a wonderful day.