GRANITE POINT MORTGAGE TRUST INC.
Note 1. Organization and Operations
Granite Point Mortgage Trust Inc., or the Company, is a Maryland corporation 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. The Company is currently externally managed by Pine River Capital Management L.P., or the Manager. The Company’s common stock is listed on the New York Stock Exchange, or NYSE, under the symbol “GPMT”.“GPMT.”
Note 2. Basis of Presentation and Significant Accounting Policies
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 U.S. 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, 2018.2019. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at SeptemberJune 30, 20192020 and results of operations for all periods presented have been made. The results of operations for the three and ninesix months ended SeptemberJune 30, 20192020 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.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
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, 20182019 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 consolidated financial condition and results of operations for the three and ninesix months ended SeptemberJune 30, 2019.2020.
Asset-Specific FinancingsLoans Held-for-Sale
The Company financesclassifies certain loans as held-for-sale based on management’s intent to sell or otherwise dispose of its loans held-for-investment throughthem. Loans held-for-sale are reported at the uselower of an asset-specific financing facility. Borrowingsamortized cost or fair value. Fair value is determined under the asset-specific financing facility generally bear interest ratesguidance of a specified margin over one-month LIBOR. The asset-specific financings are treated as collateralized financing transactionsASC 820. Interest income on loans held-for-sale is recognized at the loan coupon rate and are carried at their contractual amounts, as specified inrecorded on the respective agreements.consolidated statements of comprehensive income.
Recently Issued and/or Adopted Accounting Standards
Lease Classification and Accounting
In February 2016, the FASB issued ASU No. 2016-02, which requires lessees to recognize on their balance sheets both a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. The Company’s adoption of this ASU did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.
Measurement of Credit Losses on Financial Instruments
In June 2016,On January 1, 2020, the FASB issuedCompany adopted Accounting Standard Update, or ASU, No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard will replace the incurred loss impairment methodology pursuant to GAAP andInstruments, or ASU 2016-13. ASU 2016-13 significantly changechanges how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The newASU 2016-13 replaces the incurred loss model requires the estimation of lifetime expected credit losses and corresponding recognition of allowanceunder existing guidance with a Current Expected Credit Loss, or CECL, model for losses on loans, trade and other receivables, held-to-maturity (or HTM) debt securities and other instruments heldmeasured at amortized cost, while considering a broader range of reasonable and supportable informationalso require entities to inform such credit loss estimates. Additionally, this ASU will require recordingrecord allowances for available-for-sale, or AFS, debt securities rather than directly reducingreduce the amortized cost, carrying amount of such securitiesas they did under the current other-than-temporary impairment model. TheIt also simplifies the accounting model for purchased credit-impaired debt securities and loans. In addition, the new model applies to off-balance sheet credit exposures, such as unfunded loan commitments. ASU requires certain recurring disclosures and is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2019, with early adoption permitted for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018. While2016-13 was adopted by the Company through a cumulative-effect adjustment to cumulative earnings of $18.5 million as of January 1, 2020.
The allowance for credit losses required under ASU 2016-13 is evaluatinga valuation account that is deducted from the impactamortized cost basis of adopting this ASUrelated loans and debt securities on itsthe Company’s condensed consolidated balance sheets, and which reduces the Company’s total stockholders’ equity. The initial allowance for credit losses recorded on January 1, 2020 is reflected as a direct charge to cumulative earnings; however, going forward, changes to the allowance for credit losses are recognized through net income on the Company’s condensed consolidated statements of comprehensive (loss) income. While ASU 2016-13 does not require any particular method for determining the allowance for credit losses, it does specify the allowance should be based on relevant information about past events, including historical loss experience, current portfolio, market conditions, and reasonable and supportable forecasts for the duration of each respective loan. In addition, other than a few narrow exceptions, ASU 2016-13 requires that all financial statements,instruments subject to the Company expectsCECL model have some amount of expected loss to reflect the GAAP principal underlying the CECL model that all loans, debt securities, and similar assets have some inherent risk of loss, regardless of credit quality, subordinate capital or other mitigating factors.
The Company’s loans typically include commitments to fund incremental proceeds to its borrowers over the adoptionlife of ASU No. 2016-13 will resultthe loan. Those future funding commitments are also subject to an allowance for credit losses. The allowance for credit losses related to future loan fundings is recorded as a component of other liabilities on the Company’s condensed consolidated balance sheets, and not as an offset to the related loan balance. This allowance for credit losses is estimated using the same process outlined below for the Company’s outstanding loan balances, and changes in an increased amountthis component of the allowance for credit losses with a resulting negative adjustment to retained earnings. similarly flow through the Company’s condensed consolidated statement of comprehensive (loss) income.
The Company currently doeselected not have anyto measure an allowance for credit losses recordedon accrued interest receivable when the accrued interest is due within 90 days. The Company generally writes off accrued interest receivable balance when interest is 90 days or more past due unless the loan is both well secured and in itsthe process of collection. Write-offs of accrued interest receivable are recognized within provision for credit losses in the condensed consolidated financial statements.statements of comprehensive income. Accrued interest receivable includes deferred interest that may be collected at the loan maturity or past 90 days, and an allowance for credit losses has been included as part of the loan’s amortized cost. The Company is currently developing new processes,did not write-off any accrued interest receivable during the three and six months ended June 30, 2020.
The Company’s implementation process included a selection of a credit loss analytical model, completion and documentation of policies and procedures, changes to internal reporting processes and related internal controls and additional disclosures. A control framework for governance, data, forecast, and model controls was developed to implementsupport the standard, which it expects to have completed by the adoption date.
AccountingCECL process. The allowance for Share-Based Payments to Nonemployees
In June 2018, the FASB issued ASU No. 2018-07 to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Under the guidance, equity-classified nonemployee awards will be measuredcredit losses is estimated on a quarterly basis and fixed at the grant date, rather than measured at fair value at each reporting date until the date at which the nonemployee’s performance is complete. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. The Company’s adoptionrepresents management’s estimates of this ASU was applied by recording a cumulative-effect adjustment to retained earnings as of January 1, 2019, which did not have a material impact oncurrent expected credit losses in the Company’s financial condition, resultsinvestment portfolio. Pools of operations or financial statement disclosures.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
SEC Disclosure UpdateConsidering the lack of historical company data related to any realized loan losses since its inception, the Company elected to estimate its allowance for credit losses by using a probability-weighted analytical model that considers the likelihood of default and Simplification
In August 2018, the SEC adopted a final rule that amends certain disclosure requirements that have become duplicative, overlapping or outdated in light of other SEC disclosure requirements, U.S. GAAP or changes in the information environment. However, the guidance also added requirements for entities to include in their interim financial statements a reconciliation of changes in stockholders’ equityloss-given-default for each periodindividual loan. The analytical model incorporates a third-party licensed database with historical loan losses from 1998 to 2019 for which an income statement is required (both year-to-date and quarterly periods). The final rule is effectiveover 100,000 commercial real estate loans. At the time of adoption of ASU No. 2016-13, in determining its initial allowance for all filings made on or after November 5, 2018. However, the SEC staff said it would not object to a registrant waiting to comply with the new interim disclosure requirement until the filing of its Form 10-Q for the quarter that begins after the effective date. As a result,credit losses estimate, the Company adoptedemployed a third-party licensed macroeconomic forecast that largely reflected management’s views at the new interim disclosure requirement in connectiontime and projected a stable overall economic scenario over the reasonable projection period. Significant inputs to the Company’s estimate of the allowance for credit losses include the reasonable and supportable forecast period and loan specific factors such as DSCR, LTV, remaining contractual loan term, property type and others. In addition, the Company also considers relevant loan-specific qualitative factors to estimate its allowance for credit losses. In certain instances, for loans with unique risk characteristics, the Form 10-Q filing for the first quarter of 2019. The Company’sCompany may instead elect to employ different methods to estimate loan losses that also conform to ASU 2016-13 and related guidance.
Upon adoption of this final rule did not have a material impactASU No. 2016-13 on January 1, 2020, based on the Company’s financial condition, resultsloan portfolio, pre-COVID-19 economic environment and management’s expectations for future economic and market conditions at the time, the Company recorded an initial allowance for credit losses, as a cumulative-effective adjustment to the cumulative earnings in its consolidated statement of operationsequity, of approximately $18.5 million, or approximately $0.34 per share.
The following table illustrates the day-one financial statement disclosures.impact of the adoption of ASU 2016-13 on January 1, 2020:
| | | | | | | | | | | | | | | | | |
| (in thousands) | | | | | |
| ASSETS | Pre-ASU 2016-13 Adoption | | Cumulative Effect of Adoption | | As Reported Under ASU 2016-13 |
| Loans and securities | $ | 4,257,086 | | | $ | — | | | $ | 4,257,086 | |
| Allowance for credit losses | — | | | (16,692) | | | (16,692) | |
| Loans and securities, net | $ | 4,257,086 | | | $ | (16,692) | | | $ | 4,240,394 | |
| | | | | |
| LIABILITIES | | | | | |
Liability for off-balance sheet credit losses (1) | $ | — | | | $ | 1,780 | | | $ | 1,780 | |
| | | | | |
| STOCKHOLDERS’ EQUITY | | | | | |
| Cumulative earnings | $ | 162,076 | | | $ | (18,472) | | | $ | 143,604 | |
(1)Represents expected loss on unfunded commitments.
Note 3. Variable Interest Entities
The Company finances pools of its commercial real estate loans through collateralized loan obligations, or CLOs, which are considered VIEs for financial reporting purposes and, thus, are reviewed for consolidation under the applicable consolidation guidance. Because theThe Company has both the power to direct the activities of the 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 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 SeptemberJune 30, 20192020 and December 31, 2018:2019:
|
| | | | | | | |
| (in thousands) | September 30,
2019 | | December 31,
2018 |
| Loans held-for-investment | $ | 1,305,469 |
| | $ | 795,259 |
|
| Restricted cash | 157,556 |
| | 26,136 |
|
| Accrued interest receivable | 3,598 |
| | 2,622 |
|
| Other assets | 5,941 |
| | 5,130 |
|
| Total Assets | $ | 1,472,564 |
| | $ | 829,147 |
|
| Securitized debt obligations | $ | 1,124,820 |
| | $ | 654,263 |
|
| Accrued interest payable | 1,131 |
| | 689 |
|
| Other liabilities | 41 |
| | — |
|
| Total Liabilities | $ | 1,125,992 |
| | $ | 654,952 |
|
| | | | | | | | | | | |
| (in thousands) | June 30,
2020 | | December 31,
2019 |
| Loans held-for-investment | $ | 1,319,151 | | | $ | 1,301,369 | |
| Allowance for credit losses | (20,674) | | | — | |
| Loans held-for-investment, net | 1,298,477 | | | 1,301,369 | |
| | | |
| Restricted cash | 192 | | | 76,093 | |
| | | |
| Other assets | 8,786 | | | 9,686 | |
| Total Assets | $ | 1,307,455 | | | $ | 1,387,148 | |
| Securitized debt obligations | $ | 983,521 | | | $ | 1,041,044 | |
| | | |
| Other liabilities | 709 | | | 1,078 | |
| Total Liabilities | $ | 984,230 | | | $ | 1,042,122 | |
The Company is not required to consolidate VIEs for which it has concluded it does not have both the power to direct the activities of the VIEs 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. The Company’s investments in these unconsolidated VIEs include commercial mortgage-backed securities, or CMBS, which are classified within AFS securities, at fair value, and held-to-maturity, or HTM, securities on the condensed consolidated balance sheets. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the carrying value, net of allowance for credit losses, which also represents the maximum exposure to loss, of all CMBS in unconsolidated VIEs was $32.4$23.3 million and $39.3$30.9 million, respectively.
Note 4. 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. Interest income on loans held-for-investment is recognized at the loan coupon rate. Any premiums or discounts, loan fees,
contractual exit fees and origination costs are amortized or accreted into interest income over the lives of the loans using the
effective interest method. Loans are considered past due when they are 30 days past their contractual due date. Interest income
recognition is suspended when loans are placed on nonaccrual status. Generally, commercial mortgage loans are placed on
nonaccrual status when delinquent for more than 90 days or when determined not to be probable of full collection. Interest
accrued, but not collected, at the date loans are placed on nonaccrual is reversed and subsequently recognized only to the extent
it is received in cash or until it qualifies for return to accrual status. However, where there is doubt regarding the ultimate
collectability of loan principal, all cash received is applied to reduce the carrying value of such loans. Commercial mortgage
loans are restored to accrual status only when contractually current or the collection of future payments is reasonably assured.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
The Company also finances pools of its commercial real estate loans through CLOs, which are considered to be 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 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 CLOs and classifies the underlying loans as loans held-for-investment. Loans held-for-investment are reported at cost, net of any unamortized acquisition premiums or discounts, loan fees, and origination costs and allowance for credit losses as applicable.
The following tables summarize the Company’s loans held-for-investment by asset type, property type and geographic location as of SeptemberJune 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30,
2020 | | | | | | |
| (dollars in thousands) | Senior Loans (1) | | Mezzanine Loans | | B-Notes | | Total |
| Unpaid principal balance | $ | 4,364,056 | | | $ | 12,894 | | | $ | 14,343 | | | $ | 4,391,293 | |
| Unamortized (discount) premium | (108) | | | — | | | — | | | (108) | |
| Unamortized net deferred origination fees | (24,431) | | | 3 | | | — | | | (24,428) | |
| Allowance for credit losses | (74,647) | | | (1,776) | | | (287) | | | (76,710) | |
| Carrying value | $ | 4,264,870 | | | $ | 11,121 | | | $ | 14,056 | | | $ | 4,290,047 | |
| Unfunded commitments | $ | 677,674 | | | $ | — | | | $ | — | | | $ | 677,674 | |
| Number of loans | 118 | | | 2 | | | 1 | | | 121 | |
| Weighted average coupon | 5.1 | % | | 10.4 | % | | 8.0 | % | | 5.1 | % |
Weighted average years to maturity (2) | 1.4 | | 1.3 | | 6.6 | | 1.4 |
|
| | | | | | | | | | | | | | | |
| | September 30,
2019 |
| (dollars in thousands) | Senior Loans (1) | | Mezzanine Loans | | B-Notes | | Total |
| Unpaid principal balance | $ | 3,927,513 |
| | $ | 13,806 |
| | $ | 14,501 |
| | $ | 3,955,820 |
|
| Unamortized (discount) premium | (127 | ) | | — |
| | — |
| | (127 | ) |
| Unamortized net deferred origination fees | (28,598 | ) | | — |
| | — |
| | (28,598 | ) |
| Carrying value | $ | 3,898,788 |
| | $ | 13,806 |
| | $ | 14,501 |
| | $ | 3,927,095 |
|
| Unfunded commitments | $ | 666,959 |
| | $ | — |
| | $ | — |
| | $ | 666,959 |
|
| Number of loans | 113 |
| | 2 |
| | 1 |
| | 116 |
|
| Weighted average coupon | 5.9 | % | | 12.1 | % | | 8.0 | % | | 5.9 | % |
Weighted average years to maturity (2) | 1.8 |
| | 2.4 |
| | 7.3 |
| | 1.8 |
|
8
|
| | | | | | | | | | | | | | | |
| | December 31,
2018 |
| (dollars in thousands) | Senior Loans (1) | | Mezzanine Loans | | B-Notes | | Total |
| Unpaid principal balance | $ | 3,147,310 |
| | $ | 31,679 |
| | $ | 14,652 |
| | $ | 3,193,641 |
|
| Unamortized (discount) premium | (151 | ) | | — |
| | — |
| | (151 | ) |
| Unamortized net deferred origination fees | (25,577 | ) | | — |
| | — |
| | (25,577 | ) |
| Carrying value | $ | 3,121,582 |
| | $ | 31,679 |
| | $ | 14,652 |
| | $ | 3,167,913 |
|
| Unfunded commitments | $ | 626,155 |
| | $ | — |
| | $ | — |
| | $ | 626,155 |
|
| Number of loans | 88 |
| | 3 |
| | 1 |
| | 92 |
|
| Weighted average coupon | 6.4 | % | | 11.4 | % | | 8.0 | % | | 6.5 | % |
Weighted average years to maturity (2) | 2.0 |
| | 1.9 |
| | 8.1 |
| | 2.0 |
|
____________________
| |
(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. |
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31,
2019 | | | | | | |
| (dollars in thousands) | Senior Loans (1) | | Mezzanine Loans | | B-Notes | | Total |
| Unpaid principal balance | $ | 4,229,194 | | | $ | 13,503 | | | $ | 14,448 | | | $ | 4,257,145 | |
| Unamortized (discount) premium | (124) | | | — | | | — | | | (124) | |
| Unamortized net deferred origination fees | (30,788) | | | (21) | | | — | | | (30,809) | |
| Carrying value | $ | 4,198,282 | | | $ | 13,482 | | | $ | 14,448 | | | $ | 4,226,212 | |
| Unfunded commitments | $ | 748,878 | | | $ | — | | | $ | — | | | $ | 748,878 | |
| Number of loans | 117 | | | 2 | | | 1 | | | 120 | |
| Weighted average coupon | 5.4 | % | | 11.7 | % | | 8.0 | % | | 5.4 | % |
Weighted average years to maturity (2) | 1.8 | | 2.0 | | 7.1 | | 1.8 |
____________________
|
| | | | | | | | | | | | | | |
| (dollars in thousands) | | September 30,
2019 | | December 31,
2018 |
| Property Type | | Carrying Value | | % of Loan Portfolio | | Carrying Value | | % of Loan Portfolio |
| Office | | $ | 1,697,438 |
| | 43.2 | % | | $ | 1,495,128 |
| | 47.2 | % |
| Multifamily | | 962,810 |
| | 24.5 | % | | 569,259 |
| | 18.0 | % |
| Hotel | | 588,639 |
| | 15.0 | % | | 427,611 |
| | 13.5 | % |
| Retail | | 374,622 |
| | 9.5 | % | | 324,447 |
| | 10.2 | % |
| Industrial | | 269,018 |
| | 6.9 | % | | 351,468 |
| | 11.1 | % |
| Other | | 34,568 |
| | 0.9 | % | | — |
| | — | % |
| Total | | $ | 3,927,095 |
| | 100.0 | % | | $ | 3,167,913 |
| | 100.0 | % |
|
| | | | | | | | | | | | | | |
| (dollars in thousands) | | September 30,
2019 | | December 31,
2018 |
| Geographic Location | | Carrying Value | | % of Loan Portfolio | | Carrying Value | | % of Loan Portfolio |
| Northeast | | $ | 1,217,385 |
| | 31.1 | % | | $ | 1,171,691 |
| | 37.0 | % |
| Southwest | | 1,010,930 |
| | 25.7 | % | | 681,108 |
| | 21.5 | % |
| West | | 630,165 |
| | 16.0 | % | | 694,223 |
| | 21.9 | % |
| Midwest | | 566,120 |
| | 14.4 | % | | 250,930 |
| | 7.9 | % |
| Southeast | | 502,495 |
| | 12.8 | % | | 369,961 |
| | 11.7 | % |
| Total | | $ | 3,927,095 |
| | 100.0 | % | | $ | 3,167,913 |
| | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | | June 30,
2020 | | | | December 31,
2019 | | |
| Property Type | | Carrying Value | | % of Loan Portfolio | | Carrying Value | | % of Loan Portfolio |
| Office | | $ | 1,822,072 | | | 42.5 | % | | $ | 1,779,173 | | | 42.0 | % |
| Multifamily | | 1,082,763 | | | 25.2 | % | | 1,058,708 | | | 25.1 | % |
| Hotel | | 642,342 | | | 15.0 | % | | 640,503 | | | 15.2 | % |
| Retail | | 394,498 | | | 9.2 | % | | 398,742 | | | 9.4 | % |
| Industrial | | 309,833 | | | 7.2 | % | | 312,637 | | | 7.4 | % |
| Other | | 38,539 | | | 0.9 | % | | 36,449 | | | 0.9 | % |
| Total | | $ | 4,290,047 | | | 100.0 | % | | $ | 4,226,212 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | | June 30,
2020 | | | | December 31,
2019 | | |
| Geographic Location | | Carrying Value | | % of Loan Portfolio | | Carrying Value | | % of Loan Portfolio |
| Northeast | | $ | 1,164,887 | | | 27.2 | % | | $ | 1,196,767 | | | 28.4 | % |
| Southwest | | 882,459 | | | 20.6 | % | | 923,519 | | | 21.8 | % |
| West | | 802,555 | | | 18.7 | % | | 735,416 | | | 17.4 | % |
| Midwest | | 718,235 | | | 16.7 | % | | 700,778 | | | 16.6 | % |
| Southeast | | 721,911 | | | 16.8 | % | | 669,732 | | | 15.8 | % |
| | | | | | | | |
| Total | | $ | 4,290,047 | | | 100.0 | % | | $ | 4,226,212 | | | 100.0 | % |
At SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company pledged loans held-for-investment with a carrying value, net of $3.7allowance for credit losses, of $4.2 billion and $2.9$4.1 billion, respectively, as collateral for repurchase agreements, an asset-specific financings,financing facility, a revolving credit facilitiesfacility and securitized debt obligations. See Note 109 - Repurchase Agreements, Note 11 - Asset-specific Financings, Note 12 - Revolving Credit FacilitiesCollateralized Borrowings and Note 1310 - Securitized Debt Obligations.
The following table summarizes activity related to loans held-for-investment for the three and nine months ended September 30, 2019 and 2018.9
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
| Balance at beginning of period | $ | 3,560,117 |
| | $ | 2,483,606 |
| | $ | 3,167,913 |
| | $ | 2,304,266 |
|
| Originations, acquisitions and additional fundings | 535,021 |
| | 249,532 |
| | 1,230,712 |
| | 851,662 |
|
| Repayments | (164,797 | ) | | (24,199 | ) | | (468,534 | ) | | (444,878 | ) |
| Net discount accretion (premium amortization) | 4 |
| | 4 |
| | 24 |
| | 22 |
|
| Increase in net deferred origination fees | (6,387 | ) | | (3,990 | ) | | (14,034 | ) | | (11,994 | ) |
| Amortization of net deferred origination fees | 3,137 |
| | 3,385 |
| | 11,014 |
| | 9,260 |
|
| Allowance for loan losses | — |
| | — |
| | — |
| | — |
|
| Balance at end of period | $ | 3,927,095 |
| | $ | 2,708,338 |
| | $ | 3,927,095 |
| | $ | 2,708,338 |
|
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | | | Six Months Ended
June 30, | | | | |
| (in thousands) | 2020 | | 2019 | | 2020 | | 2019 | | |
| Balance at beginning of period | $ | 4,251,251 | | | $ | 3,292,989 | | | $ | 4,226,212 | | | $ | 3,167,913 | | | |
| Originations, acquisitions and additional fundings | 72,591 | | | 415,997 | | | 260,013 | | | 695,691 | | | |
| | | | | | | | | |
| Repayments | (3,976) | | | (148,417) | | | (106,115) | | | (303,737) | | | |
| Transfers to loans held-for-sale | (19,665) | | | — | | | (19,665) | | | — | | | |
| Net discount accretion (premium amortization) | 8 | | | 7 | | | 16 | | | 20 | | | |
| Increase in net deferred origination fees | (556) | | | (4,527) | | | (3,009) | | | (7,647) | | | |
| Amortization of net deferred origination fees | 4,539 | | | 4,068 | | | 9,305 | | | 7,877 | | | |
| | | | | | | | | |
| Allowance for credit losses | (14,145) | | | — | | | (76,710) | | | — | | | |
| Balance at end of period | $ | 4,290,047 | | | $ | 3,560,117 | | | $ | 4,290,047 | | | $ | 3,560,117 | | | |
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. Given the highly uncertain current macroeconomic environment and the lack of clarity on the near-term outlook for the overall U.S. economy as a result of the COVID-19 pandemic, in determining its allowance for credit losses estimate through June 30, 2020, the Company employed an updated third-party provided macroeconomic forecast over the reasonable projection period. This forecast is generally updated on a quarterly basis and reflects the impact of the COVID-19 pandemic on the overall U.S. economy, commercial real estate markets generally and is not specific to any loans in its portfolio. These estimates may change in future periods based on available future macro-economic data and might results in a material change in the Company’s future estimates of expected credit losses for its loan portfolio. Due to the COVID-19 pandemic and the dislocation it has caused to the national economy, the commercial real estate markets, and the capital markets, the Company’s ability to estimate key inputs for estimating the allowance for credit losses has been materially and adversely impacted. Estimates made by management are necessarily subject to change due to the lack of observable inputs and uncertainty regarding the duration of the COVID-19 pandemic and its aftereffects. See Note 2 - Use of Estimates for further discussion of COVID-19. Significant inputs to the Company’s estimate of the allowance for credit losses include loan specific factors such as DSCR, 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.
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 future funding commitments is recorded as a component of other liabilities on the Company’s condensed consolidated balance sheets. As of June 30, 2020, the Company recognized $8.1 million in other liabilities related to the allowance for credit losses 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 (loss) income.
The following table presents the changes for the three and six months ended June 30, 2020 in the allowance for credit losses on loans held-for-investment:
| | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | | | Six Months Ended
June 30, | | | | |
| (in thousands) | 2020 | | | | 2020 | | | | |
| Balance at beginning of period | $ | 62,565 | | | | | $ | 16,692 | | | | | |
| Provision for credit losses | 14,145 | | | | | 60,018 | | | | | |
| Writeoffs | — | | | | | — | | | | | |
| Recoveries of amounts previously written off | — | | | | | — | | | | | |
| Balance at end of period | $ | 76,710 | | | | | $ | 76,710 | | | | | |
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
For the three months ended June 30, 2020, the Company’s estimate of expected credit losses further increased primarily due to the continued sharply recessionary macroeconomic forecast employed in the Company’s loss estimation model stemming from the ongoing impact of the COVID-19 pandemic.
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. No loan was placed on nonaccrual status during the quarters ended June 30, 2020 and March 31, 2020, and at December 31, 2019. With the passage of time and continuation of the COVID-19 pandemic, certain borrowers may become delinquent for more than 90 days which may result in certain loans being placed on nonaccrual status during the third quarter of 2020 and later periods.
The Company’s primary credit quality indicators are its risk rankings. The Company evaluates the credit quality of each loan for impairment 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, loan-to-value ratio,LTV, project sponsorship and other factors deemed necessary. Risk ratings are defined as follows:
| |
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 future loss. |
| |
5 – | Impaired/Loss Likely: A loan that has a significantly increased probability of default or principal loss. |
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 default or principal loss.
5 –Loss Likely: A loan that has a significantly increased probability of default or principal loss.
The following table presents the number of loans, unpaid principal balance and carrying value (amortized cost) by risk rating for loans held-for-investment as of SeptemberJune 30, 20192020 and December 31, 2018:2019:
|
| | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | | September 30,
2019 | | December 31,
2018 |
| Risk Rating | | Number of Loans | | Unpaid Principal Balance | | Carrying Value | | Number of Loans | | Unpaid Principal Balance | | Carrying Value |
| 1 | | 12 |
| | $ | 475,467 |
| | $ | 473,918 |
| | 9 |
| | $ | 354,791 |
| | $ | 353,583 |
|
| 2 | | 94 |
| | 3,185,865 |
| | 3,160,283 |
| | 78 |
| | 2,680,297 |
| | 2,656,679 |
|
| 3 | | 9 |
| | 274,738 |
| | 273,268 |
| | 3 |
| | 121,133 |
| | 120,496 |
|
| 4 | | 1 |
| | 19,750 |
| | 19,626 |
| | 2 |
| | 37,420 |
| | 37,155 |
|
| 5 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total | | 116 |
| | $ | 3,955,820 |
| | $ | 3,927,095 |
| | 92 |
| | $ | 3,193,641 |
| | $ | 3,167,913 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | | June 30,
2020 | | | | | | December 31,
2019 | | | | |
| Risk Rating | | Number of Loans | | Unpaid Principal Balance | | Carrying Value | | Number of Loans | | Unpaid Principal Balance | | Carrying Value |
| 1 | | 6 | | | $ | 173,494 | | | $ | 172,186 | | | 9 | | | $ | 293,191 | | | $ | 292,270 | |
| 2 | | 70 | | | 2,508,630 | | | 2,475,443 | | | 100 | | | 3,661,077 | | | 3,632,528 | |
| 3 | | 27 | | | 890,835 | | | 865,772 | | | 9 | | | 243,127 | | | 241,901 | |
| 4 | | 18 | | | 818,334 | | | 776,646 | | | 2 | | | 59,750 | | | 59,513 | |
| 5 | | — | | | — | | | — | | | — | | | — | | | — | |
| Total | | 121 | | | $ | 4,391,293 | | | $ | 4,290,047 | | | 120 | | | $ | 4,257,145 | | | $ | 4,226,212 | |
TheAs of December 31, 2019 (prior to the adoption of ASU 2016-13), the Company hashad not identified any impaired loans and it hashad not recorded any allowances for losses as it iswas not deemed probable that the Company willwould not be able to collect all amounts due pursuant to the contractual terms of the loans.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
The following table presents the carrying value of loans held-for-investment as of June 30, 2020 by risk rating and year of origination:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | | | | | | | | | | | |
| (dollars in thousands) | | Origination Year | | | | | | | | | | | | |
| Risk Rating | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total |
| 1 (Low Risk) | | $ | — | | | $ | — | | | $ | 117,510 | | | $ | 21,393 | | | $ | 33,283 | | | $ | — | | | $ | 172,186 | |
| 2 (Average Risk) | | 73,459 | | | 1,118,870 | | | 594,483 | | | 418,305 | | | 188,227 | | | 82,099 | | | 2,475,443 | |
| 3 (Acceptable Risk) | | 11,823 | | | 346,911 | | | 257,580 | | | 238,337 | | | — | | | 11,121 | | | 865,772 | |
| 4 (Higher Risk) | | 40,364 | | | 164,507 | | | 249,086 | | | 181,459 | | | — | | | 141,230 | | | 776,646 | |
| 5 (Loss Likely) | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total | | $ | 125,646 | | | $ | 1,630,288 | | | $ | 1,218,659 | | | $ | 859,494 | | | $ | 221,510 | | | $ | 234,450 | | | $ | 4,290,047 | |
As of June 30, 2020 and December 31, 2019, the Company had not identified any loans that were past-due, in nonaccrual status, or in maturity default. Additionally, during the six months ended June 30, 2020, the Company did not enter into any loan modifications which were classified as troubled debt restructuring.
Note 5. Available-for-Sale Securities
The following table presents the face value andcomponents of the carrying value (which approximates fair value) of AFS securities as of SeptemberJune 30, 20192020 and December 31, 2018:2019:
|
| | | | | | | |
| (in thousands) | September 30,
2019 | | December 31,
2018 |
| Face value | $ | 12,798 |
| | $ | 12,798 |
|
| Gross unrealized gains | 32 |
| | — |
|
| Gross unrealized losses | — |
| | (192 | ) |
| Carrying value | $ | 12,830 |
| | $ | 12,606 |
|
| | | | | | | | | | | |
| (in thousands) | June 30,
2020 | | December 31,
2019 |
| Face value | $ | 12,798 | | | $ | 12,798 | |
| Unamortized premium (discount) | — | | | — | |
| | | |
| | | |
| | | |
| | | |
| Allowance for credit losses | (256) | | | — | |
| Gross unrealized gains | — | | | 32 | |
| Gross unrealized losses | — | | | — | |
| Carrying value | $ | 12,542 | | | $ | 12,830 | |
On SeptemberJune 30, 2019,2020, the Company’s AFS securities had contractual maturities of less than one year.
At SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company pledged AFS securities with a carrying value of $12.8$12.5 million and $12.6$12.8 million, respectively, as collateral for repurchase agreements. See Note 109 - Repurchase AgreementsCollateralized Borrowings.
At Septemberboth June 30, 2019, the Company’s AFS securities were in an unrealized gain position. At2020 and December 31, 2018,2019, none of the Company’s AFS securities were in an unrealized loss position for less than twelve months.position.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Evaluating AFS Securities for Other-Than-Temporary Impairments
In evaluating AFS securities for other-than-temporary impairments, or OTTI, the Company determines whether there has been a significant adverse quarterly change in the cash flow expectations for a security. The Company compares the amortized cost of each security in an unrealized loss position against the present value of expected future cash flows of the security. The Company also considers whether there has been a significant adverse change in the regulatory and/or economic environment as part of this analysis. If the amortized cost of the security is greater than the present value of expected future cash flows using the original yield as the discount rate, an other-than-temporary credit impairment has occurred. If the Company does not intend to sell and will not be more likely than not required to sell the security, the credit loss is recognized in earnings and the balance of the unrealized loss is recognized in other comprehensive income. If the Company intends to sell the security or will be more likely than not required to sell the security, the full unrealized loss is recognized in earnings. The Company did not record any other-than-temporary credit impairments during the three and nine months ended September 30, 2019 and 2018 as expected cash flows were greater than amortized cost for all AFS securities held.
Note 6. Held-to-Maturity Securities
The following table presents the face value andcomponents of the carrying value of HTM securities by collateral type as of SeptemberJune 30, 20192020 and December 31, 2018:2019:
|
| | | | | | | |
| (in thousands) | September 30,
2019 | | December 31,
2018 |
| Face value | $ | 19,594 |
| | $ | 26,696 |
|
| Unamortized premium (discount) | — |
| | — |
|
| Carrying value | $ | 19,594 |
| | $ | 26,696 |
|
| | | | | | | | | | | |
| (in thousands) | June 30,
2020 | | December 31,
2019 |
| Face value | $ | 11,726 | | | $ | 18,076 | |
| Unamortized premium (discount) | — | | | — | |
| Allowance for credit losses | (938) | | | — | |
| Carrying value | $ | 10,788 | | | $ | 18,076 | |
On SeptemberJune 30, 2019,2020, the Company’s HTM securities had contractual maturities of less than one year.
At SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company pledged HTM securities with a carrying value of $19.6$10.8 million and $26.7$18.1 million, respectively, as collateral for repurchase agreements. See Note 109 - Repurchase AgreementsCollateralized Borrowings.
Evaluating HTM Securities for Other-Than-Temporary Impairments
In evaluating HTM securities for OTTI, the Company determines whether there has been a significant adverse quarterly change in the cash flow expectations for a security. The Company compares the amortized cost of each security against the present value of expected future cash flows of the security. The Company also considers whether there has been a significant adverse change in the regulatory and/or economic environment as part of this analysis. If the amortized cost of the security is greater than the present value of expected future cash flows using the original yield as the discount rate, an other-than-temporary credit impairment has occurred and the credit loss is recognized in earnings. The Company did not record any other-than-temporary credit impairments during the three and nine months ended September 30, 2019 and 2018 as expected cash flows were greater than amortized cost for all HTM securities held.
Note 7. Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash held in bank accounts and cash held in money market funds on an overnight basis.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
The Company is required to maintain certain cash balances in restricted accounts as collateral for the Company’s repurchase agreements and with counterparties to support investment activities. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company had $11.2$3.3 million and $5.6$3.4 million, respectively, as collateral for repurchase agreements and by counterparties to support investment activities. In addition, as of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company held $157.6$0.2 million and $26.1$76.1 million, respectively, in restricted cash representing proceeds from principal paydowns of loans held in the CLOs.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Company’s condensed consolidated balance sheets as of SeptemberJune 30, 20192020 and December 31, 20182019 that sum to the total of the same such amounts shown in the statements of cash flows:
|
| | | | | | | |
| (in thousands) | September 30,
2019 | | December 31,
2018 |
| Cash and cash equivalents | $ | 137,355 |
| | $ | 91,700 |
|
| Restricted cash | 168,809 |
| | 31,723 |
|
| Total cash, cash equivalents and restricted cash | $ | 306,164 |
| | $ | 123,423 |
|
| | | | | | | | | | | |
| (in thousands) | June 30,
2020 | | December 31,
2019 |
| Cash and cash equivalents | $ | 55,969 | | | $ | 80,281 | |
| Restricted cash | 3,497 | | | 79,483 | |
| Total cash, cash equivalents and restricted cash | $ | 59,466 | | | $ | 159,764 | |
Note 8. Accrued Interest Receivable
The following table presents the Company’s accrued interest receivable by collateral type as of September 30, 2019 and December 31, 2018:
|
| | | | | | | |
| (in thousands) | September 30,
2019 | | December 31,
2018 |
| Loans held-for-investment | $ | 10,663 |
| | $ | 10,089 |
|
| Available-for-sale securities | 52 |
| | 57 |
|
| Held-to-maturity securities | 82 |
| | 122 |
|
| Total | $ | 10,797 |
| | $ | 10,268 |
|
Note 9. Fair Value
Fair Value Measurements
ASC 820, Fair Value Measurements, or ASC 820, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., market-based or observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). resulting in the use of management assumptions. Additionally, ASC 820 requires an entity to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring fair value of a liability.
ASC 820 establishes a three-level hierarchy to be used when measuring and disclosing fair value. An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. Following is a description of the three levels:
| |
Level 1 | Inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date under current market conditions. Additionally, the entity must have the ability to access the active market and the quoted prices cannot be adjusted by the entity. |
| |
Level 2 | Inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full-term of the assets or liabilities. |
| |
Level 3 | Unobservable inputs are supported by little or no market activity. The unobservable inputs represent the assumptions that market participants would use to price the assets and liabilities, including risk. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation. |
GRANITE POINT MORTGAGE TRUST INC.
NotesUnobservable inputs are supported by little or no market activity. The unobservable inputs represent the assumptions that market participants would use to price the Condensed Consolidated Financial Statements (unaudited)
Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models and significant assumptions utilized.
Available-for-sale securities. The Company holds AFS securities that are carried at fair value on the condensed consolidated balance sheetsheets and are comprised of CMBS. In determining the fair value of the Company’s CMBS AFS, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers or broker quotes received using the bid price, which are both deemed indicative of market activity and other applicable market data. The third-party pricing providers and brokers use pricing models that generally incorporate suchcredit and cash flow factors asincluding, but not limited to, required market yields for comparable investments, coupons, primary and secondary mortgage rates, rate reset period, issuer, prepayment speeds, credit enhancements and expected life of the security.security, property type, LTV and debt yield. If observable market prices are not available or insufficient to determine fair value due principally to illiquidity in the marketplace, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs (including prepayment speeds, delinquency levels and credit losses). The Company classified its CMBS AFS as Level 2 fair value assets at September 30, 2019 and December 31, 2018.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
Recurring Fair Value
The following tables display the Company’s assets measured at fair value on a recurring basis. The Company does not hold any liabilities measured at fair value on its condensed consolidated balance sheets.
| | | | | | | | | | | | | | | | | | | | | | | |
| Recurring Fair Value Measurements | | | | | | |
| June 30, 2020 | | | | | | |
| (in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Available-for-sale securities | $ | — | | | $ | 12,542 | | | $ | — | | | $ | 12,542 | |
| Total assets | $ | — | | | $ | 12,542 | | | $ | — | | | $ | 12,542 | |
|
| | | | | | | | | | | | | | | |
| | Recurring Fair Value Measurements |
| | September 30, 2019 |
| (in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Available-for-sale securities | $ | — |
| | $ | 12,830 |
| | $ | — |
| | $ | 12,830 |
|
| Total assets | $ | — |
| | $ | 12,830 |
| | $ | — |
| | $ | 12,830 |
|
|
| | | | | | | | | | | | | | | |
| | Recurring Fair Value Measurements |
| | December 31, 2018 |
| (in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Available-for-sale securities | $ | — |
| | $ | 12,606 |
| | $ | — |
| | $ | 12,606 |
|
| Total assets | $ | — |
| | $ | 12,606 |
| | $ | — |
| | $ | 12,606 |
|
The Company may be required to measure certain assets or liabilities at fair value from time to time. These periodic fair value measures typically result from application of certain impairment measures under U.S. GAAP. These items would constitute nonrecurring fair value measures under ASC 820. As of September 30, 2019 and December 31, 2018, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis in the periods presented. | | | | | | | | | | | | | | | | | | | | | | | |
| Recurring Fair Value Measurements | | | | | | |
| December 31, 2019 | | | | | | |
| (in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Available-for-sale securities | $ | — | | | $ | 12,830 | | | $ | — | | | $ | 12,830 | |
| Total assets | $ | — | | | $ | 12,830 | | | $ | — | | | $ | 12,830 | |
Transfers between Levels are deemed to take place on the first day of the reporting period in which the transfer has taken place. The Company did not incur transfers between Levels for the three and ninesix months ended SeptemberJune 30, 2020 and 2019.
Nonrecurring Fair Value
The Company may be required to measure certain assets or liabilities at fair value from time to time. These periodic fair value measures typically result from application of certain impairment measures under GAAP. These items would constitute nonrecurring fair value measures under ASC 820. As of June 30, 2020 and December 31, 2019, and 2018.the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis in the periods presented.
Fair Value of Financial Instruments
In accordance with ASC 820, the Company is required to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in the condensed consolidated balance sheets, for which fair value can be estimated.
The following describes the Company’s methods for estimating the fair value for financial instruments.instruments:
•Loans held-for-investment are carried at cost, net of any unamortized acquisition premiums or discounts, loan fees, and origination costs and allowance for credit losses, as applicable. The Company estimates the fair value of its loans held-for-investment by assessing any changes in market interest rates, credit spreads for loans of comparable risk as corroborated by inquiry of other market participants, shifts in credit profiles and actual operating results for mezzanine loans and senior loans, taking into consideration such factors as underlying property type, property competitive position within its market, market and submarket fundamentals, tenant mix, nature of business plan, sponsorship, extent of leverage and other loan terms. The Company categorizes the fair value measurement of these assets as Level 3.
| |
• | •AFS securities are recurring fair value measurements; carrying value equals fair value. See discussion of valuation methods and assumptions within the Fair Value Measurements section of this footnote. • Fair Value Measurements section of this footnote. |
HTM securities, which are comprised of CMBS, are carried at cost, net of any unamortized acquisition premiums or discounts.discounts and allowance for credit losses. In determining the fair value of the Company’s CMBS HTM, management judgment may be used to arrive
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
at fair value that considers prices obtained from third-party pricing providers or broker quotes received using the bid price, which are both deemed indicative of market activity, and other applicable market data. The third-party pricing providers and brokers use pricing models that generally incorporate such factors as coupons, primary and secondary mortgage rates, rate reset period, issuer, prepayment speeds, credit enhancements and expected life of the security. The Company categorizes the fair value measurement of these assets as Level 2.
•Cash and cash equivalents and restricted cash have a carrying value which approximates fair value because of the short maturities of these instruments. The Company categorizes the fair value measurement of these assets as Level 1.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
•The carrying value of repurchase agreements, asset-specific financing facilitiesfinancings and revolving credit facilities that mature in less than one year generally approximates fair value due to the short maturities. The Company’s long-term repurchase agreements and asset-specific financing facilities and revolving credit facilitiesfinancings have floating rates based on an index plus a credit spread and the credit spread is typically consistent with those demanded in the market. Accordingly, the interest rates on these borrowings are at market and, thus, carrying value approximates fair value. The Company categorizes the fair value measurement of these liabilities as Level 2.
•Securitized debt obligations are recorded at outstanding principal, net of any unamortized deferred debt issuance costs. In determining the fair value of its securitized debt obligations, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers, broker quotes received and other applicable market data. If observable market prices are not available or insufficient to determine fair value due principally to illiquidity in the marketplace, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs (including prepayment speeds, delinquency levels and credit losses). The Company categorizes the fair value measurement of these liabilities as Level 2.
•Convertible senior notes are carried at their unpaid principal balance, net of any unamortized deferred issuance costs. The Company estimates the fair value of its convertible senior notes using the market transaction price nearest to SeptemberJune 30, 2019.2020. The Company categorizes the fair value measurement of these assets as Level 2.
The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at SeptemberJune 30, 2019 and December 31, 2018.
|
| | | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| (in thousands) | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Assets | | | | | | | |
| Loans held-for-investment | $ | 3,927,095 |
| | $ | 3,961,948 |
| | $ | 3,167,913 |
| | $ | 3,200,980 |
|
| Available-for-sale securities | $ | 12,830 |
| | $ | 12,830 |
| | $ | 12,606 |
| | $ | 12,606 |
|
| Held-to-maturity securities | $ | 19,594 |
| | $ | 19,666 |
| | $ | 26,696 |
| | $ | 26,611 |
|
| Cash and cash equivalents | $ | 137,355 |
| | $ | 137,355 |
| | $ | 91,700 |
| | $ | 91,700 |
|
| Restricted cash | $ | 168,809 |
| | $ | 168,809 |
| | $ | 31,723 |
| | $ | 31,723 |
|
| Liabilities | | | | | | | |
| Repurchase agreements | $ | 1,724,912 |
| | $ | 1,724,912 |
| | $ | 1,500,543 |
| | $ | 1,500,543 |
|
| Securitized debt obligations | $ | 1,124,820 |
| | $ | 1,136,007 |
| | $ | 654,263 |
| | $ | 654,330 |
|
| Asset-specific financings | $ | 114,080 |
| | $ | 114,080 |
| | $ | — |
| | $ | — |
|
| Revolving credit facilities | $ | — |
| | $ | — |
| | $ | 75,000 |
| | $ | 75,000 |
|
| Convertible senior notes | $ | 269,241 |
| | $ | 283,470 |
| | $ | 268,138 |
| | $ | 270,731 |
|
Note 10. Repurchase Agreements
As of September 30, 20192020 and December 31, 2018,2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | December 31, 2019 | | |
| (in thousands) | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Assets | | | | | | | |
| Loans held-for-investment, net of allowance for credit losses | $ | 4,290,047 | | | $ | 4,250,847 | | | $ | 4,226,212 | | | $ | 4,261,612 | |
| Available-for-sale securities | $ | 12,542 | | | $ | 12,542 | | | $ | 12,830 | | | $ | 12,830 | |
| Held-to-maturity securities | $ | 10,788 | | | $ | 11,374 | | | $ | 18,076 | | | $ | 18,076 | |
| Cash and cash equivalents | $ | 55,969 | | | $ | 55,969 | | | $ | 80,281 | | | $ | 80,281 | |
| Restricted cash | $ | 3,497 | | | $ | 3,497 | | | $ | 79,483 | | | $ | 79,483 | |
| Liabilities | | | | | | | |
| Repurchase agreements | $ | 2,030,916 | | | $ | 2,030,916 | | | $ | 1,924,021 | | | $ | 1,924,021 | |
| Securitized debt obligations | $ | 983,521 | | | $ | 941,262 | | | $ | 1,041,044 | | | $ | 1,050,912 | |
| Asset-specific financings | $ | 121,242 | | | $ | 121,242 | | | $ | 116,465 | | | $ | 116,465 | |
| Revolving credit facilities | $ | 12,589 | | | $ | 12,589 | | | $ | 42,008 | | | $ | 42,008 | |
| Convertible senior notes | $ | 270,437 | | | $ | 205,983 | | | $ | 269,634 | | | $ | 283,332 | |
Note 9. Collateralized Borrowings
To finance its loans held-for-investment, AFS securities and HTM securities, the Company had outstanding $1.7 billion and $1.5 billion, respectively,has entered into a variety of financing arrangements, including repurchase agreements, withan asset-specific financing facility and a weighted average borrowing rate of 4.22% and 4.61%, respectively, and weighted average remaining maturities of 1.9 and 0.9 years, respectively.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
At September 30, 2019 and December 31, 2018, the repurchase agreement balances were as follows:
|
| | | | | | | |
| (in thousands) | September 30,
2019 | | December 31,
2018 |
| Short-term | $ | 284,418 |
| | $ | 842,078 |
|
| Long-term | 1,440,494 |
| | 658,465 |
|
| Total | $ | 1,724,912 |
| | $ | 1,500,543 |
|
At September 30, 2019 and December 31, 2018, therevolving credit facility. The Company’s repurchase agreements had the following characteristicsare collateralized by loans held-for-investment, AFS and remaining maturities:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| | Collateral Type | | | | Collateral Type | | |
| (dollars in thousands) | Loans | | CMBS (1) | | Total Amount Outstanding | | Loans | | CMBS (1) | | Total Amount Outstanding |
| Within 30 days | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| 30 to 59 days | — |
| | 21,664 |
| | 21,664 |
| | — |
| | 25,854 |
| | 25,854 |
|
| 60 to 89 days | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 90 to 119 days | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 120 to 364 days | 262,754 |
| | — |
| | 262,754 |
| | 816,224 |
| | — |
| | 816,224 |
|
| One year and over | 1,440,494 |
| | — |
| | 1,440,494 |
| | 658,465 |
| | — |
| | 658,465 |
|
| Total | $ | 1,703,248 |
| | $ | 21,664 |
| | $ | 1,724,912 |
| | $ | 1,474,689 |
| | $ | 25,854 |
| | $ | 1,500,543 |
|
| Weighted average borrowing rate | 4.22 | % | | 4.39 | % | | 4.22 | % | | 4.61 | % | | 4.78 | % | | 4.61 | % |
____________________
| |
(1) | Includes repurchase agreements collateralized by both AFS securities and HTM securities. |
The following table summarizes assets at carrying values that are pledged or restricted as collateral for the future payment obligations under repurchase agreements:
|
| | | | | | | |
| (in thousands) | September 30,
2019 | | December 31,
2018 |
| Loans held-for-investment | $ | 2,283,362 |
| | $ | 2,012,550 |
|
| Available-for-sale securities, at fair value | 12,830 |
| | 12,606 |
|
| Held-to-maturity securities | 19,594 |
| | 26,696 |
|
| Restricted cash | 1,549 |
| | 2,922 |
|
| Total | $ | 2,317,335 |
| | $ | 2,054,774 |
|
HTM securities (CMBS) and certain cash balances. Although the transactions under repurchase agreements represent committed borrowings until maturity, the respective lender retains the right to mark the underlying collateral to fair value. A reduction in the value of pledged assets due to collateral-specific credit events, or, with respect to a limited number of the Company’s repurchase agreements, capital market events, depending on the agreement, would require the Company to fund margin calls. The Company’s asset-specific financing facility is collateralized by loans held-for-investment. The Company does not typically retain similar rights for the Company to make margin calls on its underlying borrowers as a result of a determination by the Company and/or repurchaseits financing counterparty that there has been a decrease in the market value of the underlying pledged collateral.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | | | | | |
| (in thousands) | Maturity Date (1) | | Amount Outstanding | | Unused Capacity | | Total Capacity | | Carrying Value of Collateral | | Weighted Average Borrowing Rate |
| Repurchase agreements: | | | | | | | | | | | |
| Morgan Stanley Bank | June 28, 2021 | | $ | 535,482 | | | $ | 64,518 | | | $ | 600,000 | | | $ | 743,836 | | | 2.4 | % |
| Goldman Sachs Bank | May 2, 2021 | | 468,741 | | | 31,259 | | | 500,000 | | | 653,298 | | | 2.5 | % |
| JPMorgan Chase Bank | June 28, 2022 | | 421,626 | | | 28,374 | | | 450,000 | | | 584,566 | | | 2.2 | % |
| Citibank | January 9, 2023 | | 416,688 | | | 83,312 | | | 500,000 | | | 526,310 | | | 1.9 | % |
Wells Fargo Bank (2) | June 28, 2021 | | 176,526 | | | 98,474 | | | 275,000 | | | 243,810 | | | 2.0 | % |
| JPMorgan Chase Bank | July 8, 2020 | | 11,853 | | | NA | | NA | | 23,330 | | | 4.5 | % |
| Total/Weighted Average | | | $ | 2,030,916 | | | $ | 305,937 | | | $ | 2,325,000 | | | $ | 2,775,150 | | | |
| Asset-specific financings: | | | | | | | | | | | |
| Canadian Imperial Bank of Commerce | Various | | $ | 121,242 | | | $ | 28,758 | | | $ | 150,000 | | | $ | 149,880 | | | 2.0 | % |
| Revolving credit facilities: | | | | | | | | | | | |
Citibank (3) | July 26, 2021 | | $ | 12,589 | | | $ | 62,411 | | | $ | 75,000 | | | $ | 42,164 | | | 2.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | | | | | | | | | |
| (in thousands) | Maturity Date (1) | | Amount Outstanding | | Unused Capacity | | Total Capacity | | Carrying Value of Collateral | | Weighted Average Borrowing Rate |
| Repurchase agreements: | | | | | | | | | | | |
| Morgan Stanley Bank | June 28, 2021 | | $ | 556,887 | | | $ | 43,113 | | | $ | 600,000 | | | $ | 740,791 | | | 3.9 | % |
| Goldman Sachs Bank | May 2, 2020 | | 405,057 | | | 94,943 | | | 500,000 | | | 541,640 | | | 3.8 | % |
| JPMorgan Chase Bank | June 28, 2022 | | 408,819 | | | 41,181 | | | 450,000 | | | 553,020 | | | 3.7 | % |
| Citibank | July 15, 2022 | | 339,888 | | | 60,112 | | | 400,000 | | | 432,867 | | | 3.4 | % |
Wells Fargo Bank (2) | June 28, 2021 | | 194,113 | | | 80,887 | | | 275,000 | | | 286,672 | | | 3.5 | % |
| JPMorgan Chase Bank | February 10, 2020 | | 19,257 | | | NA | | NA | | 30,906 | | | 4.1 | % |
| Total/Weighted Average | | | $ | 1,924,021 | | | $ | 320,236 | | | $ | 2,225,000 | | | $ | 2,585,896 | | | |
| Asset-specific financings: | | | | | | | | | | | |
| Canadian Imperial Bank of Commerce | Various | | $ | 116,465 | | | $ | 33,535 | | | $ | 150,000 | | | $ | 144,322 | | | 3.5 | % |
| Revolving credit facilities: | | | | | | | | | | | |
Citibank (3) | July 26, 2021 | | $ | 42,008 | | | $ | 32,992 | | | $ | 75,000 | | | $ | 80,473 | | | 4.0 | % |
____________________
(1)The facilities are set to mature on the stated maturity date, unless extended pursuant to their terms.
(2)As of June 30, 2020, the Company retained an option to increase the maximum facility capacity amount up to $350 million, subject to customary terms and conditions.
(3)As of June 30, 2020, the Company retained an option to increase the maximum facility capacity amount up to $150 million, subject to customary terms and conditions.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
At June 30, 2020, the Company’s collateralized borrowings outstanding had the following remaining maturities:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | |
| (dollars in thousands) | Repurchase Agreements | | Asset-Specific Financings | | Revolving Credit Facilities | | Total Amount Outstanding |
| Within one year | $ | 1,192,602 | | | $ | — | | | $ | 12,589 | | | $ | 1,205,191 | |
| One to three years | 838,314 | | | 121,242 | | | — | | | 959,556 | |
| Three to five years | — | | | — | | | — | | | — | |
| Five years and over | — | | | — | | | — | | | — | |
| Total | $ | 2,030,916 | | | $ | 121,242 | | | $ | 12,589 | | | $ | 2,164,747 | |
The following table summarizes certain characteristics of the Company’s repurchase agreements and counterparty concentration at SeptemberJune 30, 20192020 and December 31, 2018:2019:
| | | | September 30, 2019 | | December 31, 2018 | | June 30, 2020 | | | December 31, 2019 | |
| (dollars in thousands) | Amount Outstanding | | Net Counterparty Exposure (1) | | Percent of Equity | | Weighted Average Years to Maturity | | Amount Outstanding | | Net Counterparty Exposure (1) | | Percent of Equity | | Weighted Average Years to Maturity | (dollars in thousands) | Amount Outstanding | | Net Counterparty Exposure (1) | | Percent of Equity | | Weighted Average Years to Maturity | | Amount Outstanding | | Net Counterparty Exposure (1) | | Percent of Equity | | Weighted Average Years to Maturity |
| Morgan Stanley Bank | $ | 600,000 |
| | $ | 221,137 |
| | 22 | % | | 1.75 | | $ | 475,474 |
| | $ | 203,274 |
| | 25 | % | | 1.49 | Morgan Stanley Bank | $ | 535,482 | | | $ | 215,466 | | | 22 | % | | 0.99 | | $ | 556,887 | | | $ | 185,022 | | | 18 | % | | 1.49 |
| JPMorgan Chase Bank | 384,436 |
| | 156,116 |
| | 15 | % | | 2.60 | | 481,754 |
| | 168,234 |
| | 20 | % | | 0.47 | JPMorgan Chase Bank | 433,479 | | | 184,124 | | | 19 | % | | 1.94 | | 428,076 | | | 156,764 | | | 15 | % | | 2.39 |
| Goldman Sachs Bank | 262,754 |
| | 85,606 |
| | 8 | % | | 0.59 | | 251,785 |
| | 93,651 |
| | 11 | % | | 0.33 | Goldman Sachs Bank | 468,741 | | | 190,731 | | | 20 | % | | 0.84 | | 405,057 | | | 137,326 | | | 13 | % | | 0.34 |
All other counterparties (2) | 477,722 |
| | 133,024 |
| | 13 | % | | 2.39 | | 291,531 |
| | 92,614 |
| | 11 | % | | 1.12 | |
| Citibank | | Citibank | 416,688 | | | 113,880 | | | 12 | % | | 2.53 | | 339,888 | | | 93,553 | | | 9 | % | | 2.54 |
| Wells Fargo Bank | | Wells Fargo Bank | 176,526 | | | 69,141 | | | 7 | % | | 0.99 | | 194,113 | | | 93,004 | | | 9 | % | | 1.49 |
| Total | $ | 1,724,912 |
| | $ | 595,883 |
| | | | $ | 1,500,544 |
| | $ | 557,773 |
| | | | Total | $ | 2,030,916 | | | $ | 773,342 | | | $ | 1,924,021 | | | $ | 665,669 | | |
____________________
| |
(1) | Represents the net carrying value of the loans held-for-investment, AFS securities and HTM securities pledged as collateral for repurchase agreements, including accrued interest plus any cash on deposit to secure the repurchase obligation, less the amount of the repurchase liability, including accrued interest. |
| |
(2) | Represents amounts outstanding with 2 other counterparties as of September 30, 2019 and December 31, 2018. |
The Company does not anticipate any defaults by its repurchase agreementfinancing counterparties, although there can be no assurance that one or more defaults will not occur.
Note 11. Asset-Specific Financings
To finance certain of its loans held-for-investment, the Company has entered into an asset-specific financing facility collateralized by the value of the loans pledged. As of September 30, 2019, the Company had outstanding long-term borrowings under the asset-specific financing facility of $114.1 million with a weighted average borrowing rate of 4.0% and weighted average remaining maturities of 2.4 years. There were no amounts outstanding under the asset-specific financing facility as of December 31, 2018.
At September 30, 2019 and December 31, 2018, borrowings under the asset-specific financing facility had the following remaining maturities:
|
| | | | | | | |
| (in thousands) | September 30,
2019 | | December 31,
2018 |
| Within 30 days | $ | — |
| | $ | — |
|
| 30 to 59 days | — |
| | — |
|
| 60 to 89 days | — |
| | — |
|
| 90 to 119 days | — |
| | — |
|
| 120 to 364 days | — |
| | — |
|
| One year and over | 114,080 |
| | — |
|
| Total | $ | 114,080 |
| | $ | — |
|
As of September 30, 2019, loans held-for-investment with a carrying value of $141.3 million were pledged as collateral for the Company’s future payment obligations under its asset-specific financing facility. No loans held-for-investment were pledged for asset-specific financings as of December 31, 2018. The Company does not anticipate any defaults by its asset-specific financing facility counterparty, although there can be no assurance that one or more defaults will not occur.
Note 12. Revolving Credit Facilities
To finance certain of its loans held-for-investment, the Company has entered into a revolving credit facility collateralized by a borrowing base of loans. The facility provides intermediate-term bridge or transitional financing for typically around 90 days per loan and matures on July 26, 2021, unless extended pursuant to its terms. As of December 31, 2018, the Company had outstanding borrowings under the revolving credit facility of $75.0 million with a weighted average borrowing rate of 5.2%. There were no amounts outstanding under the revolving credit facility as of September 30, 2019.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
As of December 31, 2018, loans held-for-investment with a carrying value of $127.9 million were considered the borrowing base collateral for the Company’s future payment obligations under its revolving credit facility. No loans held-for-investment were designated as collateral for the revolving credit facility as of September 30, 2019. The Company does not anticipate any defaults by its revolving credit facility counterparty, although there can be no assurance that one or more defaults will not occur.
Note 13.10. Securitized Debt Obligations
The Company finances pools of its commercial real estate loans through CLOs, which are consolidated on the Company’s condensed consolidated financial statements. See Note 3 - Variable Interest Entities for additional information regarding consolidation of the CLOs. The securitized debt obligations issued by the CLOs are recorded at outstanding principal, net of any unamortized deferred debt issuance costs, on the Company’s condensed consolidated balance sheets. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the outstanding amount due on securitized debt obligations was $1.1$983.5 million and $1.0 billion, and $654.3 million, respectively, net of deferred issuance costs, respectively, with a weighted average interest rate of 3.72%1.81% and 3.58%3.32%, respectively.
Note 14.11. Convertible Senior Notes
In December 2017, the Company closed a private placement of $125.0 million aggregate principal amount of convertible senior notes due 2022. In January 2018, an additional $18.8 million in notes were issued by the Company in connection with the exercise of the initial purchaser’s option. The net proceeds from the offering were approximately $139.5 million after deducting underwriting discounts and expenses. The notes are unsecured, pay interest semiannually at a rate of 5.625% per annum and are convertible at the option of the holder into shares of the Company’s common stock. The notes will mature in December 2022, unless earlier converted or repurchased in accordance with their terms. The Company does not have the right to redeem the notes prior to maturity, but may be required to repurchase the notes from holders under certain circumstances. As of SeptemberJune 30, 2019,2020, the notes had a conversion rate of 50.487350.7073 shares of common stock per $1,000 principal amount of the notes.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
In October 2018, the Company closed an underwritten public offering of $131.6 million aggregate principal amount of convertible senior notes due 2023. The net proceeds from the offering were approximately $127.7 million after deducting underwriting discounts and expenses. The notes are unsecured, pay interest semiannually at a rate of 6.375% per annum and are convertible at the option of the holder into shares of the Company’s common stock. The notes will mature in October 2023, unless earlier converted or repurchased in accordance with their terms. The Company does not have the right to redeem the notes prior to maturity, but may be required to repurchase the notes from holders under certain circumstances. As of SeptemberJune 30, 2019,2020, the notes had a conversion rate of 48.8496 shares of common stock per $1,000 principal amount of the notes.
The consolidated amount outstanding amount due on convertible senior notes as of SeptemberJune 30, 20192020 and December 31, 20182019 was $269.2$270.4 million and $268.1$269.6 million, respectively, net of deferred issuance costs.
Note 15.12. Commitments and Contingencies
The following represent the material commitments and contingencies of the Company as of SeptemberJune 30, 2019:2020:
Impact of COVID-19. Due to the current COVID-19 pandemic in the United States and globally, the Company’s borrowers and their tenants, property sponsors, the properties securing our investments and the overall economy have been, and will continue to be, adversely affected. The magnitude and duration of the COVID-19 pandemic and the full extent of its impact on the global economy generally, and the Company’s borrowers and their tenants, cash flows and future results of operations could be significant, and will largely depend on future developments, which are highly uncertain and unpredictable, including new information, which may emerge, concerning the severity of the COVID-19 pandemic, the success of actions taken to contain or treat the pandemic, and reactions by consumers, businesses, governments and capital markets. As of June 30, 2020, no contingencies have been recorded on the Company’s condensed consolidated balance sheet as a result of COVID-19. However, as the global pandemic continues and the economic implications worsen, it may have long-term impacts on the Company’s financial condition, results of operations and cash flows. See Note 2 - Use of Estimates for further discussion of COVID-19.
Management agreement.Agreement. Upon closing theits initial public offering, or IPO, on June 28, 2017, the Company entered into a management agreement with the Manager. The Company pays the Manager a base management fee equal to 1.5% of the Company’s equity on an annualized basis, as defined in the management agreement. For purposes of calculating the management fee, equity means the sum of the net proceeds received by the Company from all issuances of its equity securities, plus its cumulative “core earnings” at the end of the most recently completed calendar quarter, less any distributions to stockholders, any amount that the Company has paid to repurchase its stock and any incentive fees earned by the Manager, but excluding the incentive fee earned in the current quarter. As a result, equity for purposes of calculating the management fee may differ from the amount of stockholders’ equity shown in the Company’s financial statements.
Incentive fees, if earned, are payable to the Manager, as defined in the management agreement. The incentive fee is the excess of (1) the product of (a) 20% and (b) the result of (i) the Company’s “core earnings” for the previous 12-month period, minus (ii) the product of (A) the Company’s equity in the previous 12-month period, and (B) 8% per annum, less (2) the sum of any incentive fees paid to the Manager with respect to the first three calendar quarters of such previous 12-month period; provided, however, that no incentive fees are payable with respect to any calendar quarter unless “core earnings” for the 12 most recently completed calendar quarters in the aggregate is greater than 0.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
In addition, under the terms of an amendment to the management agreement entered into in the fourth quarter of 2018, the Manager agreed to reimburse the Company an amount related to the compensation payable to the sales agents under the Company’s equity distribution agreement by netting such amount from the base management fee payable to the Manager for the applicable quarterly period.
For purposes of calculating base management and incentive fees, “core earnings” means net income (loss) attributable to common stockholders, excluding non-cash equity compensation expense, incentive fees earned by the Manager, depreciation and amortization, any unrealized gains or losses or other similar non-cash items that are included in net income for the applicable period (regardless of whether such items are included in other comprehensive income or loss or in net income), and one-time events pursuant to changes in U.S. GAAP and certain material non-cash income or expense items, in each case after discussions between the Manager and the Company’s independent directors and approved by a majority of the Company’s independent directors.
The initial term of the management agreement expiresexpired on June 28, 2020, and thereafter willnow automatically renewrenews for successive one-yearone-year terms annually until terminated in accordance with the terms of the agreement. Upon termination of the management agreement by the Company without cause or by the Manager due to the Company’s material breach of the management agreement, the Company is required to pay a termination fee equal to 3 times the sum of the average annual base management fee and average annual incentive compensation, in each case earned by the Manager during the 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
On March 2, 2020, the Company announced that it has agreed to a process with the Manager to internalize the Company’s management function. In connection with this process, the Company and the Manager have entered into a confidential, binding arbitration to determine any amounts payable by the Company to the Manager in consideration of the Manager’s agreement to terminate the management agreement and the Manager’s undertaking of other obligations pursuant to an internalization agreement to be entered into between the Company and the Manager following the conclusion of the arbitration process. The arbitral hearing has been delayed based on the COVID-19 pandemic, and the Company currently expects that the hearing will take place during the third or fourth quarter of 2020.
Due to the ongoing arbitration process, the Company and the Manager have not yet executed and delivered a final agreement and definitive documentation, nor has the arbitration panel determined any amounts payable by the Company to the Manager, and the Company and the Manager have not yet agreed on a date by which the internalization may be completed. The Company cannot provide any assurance that the internalization will be consummated. As of June 30, 2020, the Company’s consolidated financial statements do not recognize a contingency liability under ASC 450 because, given the inherent uncertainty of the arbitration process, management does not believe the amount of the loss or expense related to the internalization is reasonably estimable. Once the loss or expense may be reasonably estimable and management believes the internalization is a “probable” future event that may result in a loss or expense to the Company, the Company may recognize in the consolidated financial statements a contingency liability and resulting loss in such period. If the internalization is completed, the management agreement will be terminated and therefore the Company will no longer pay a management fee or reimburse expenses.
Employment contracts. The Company does not directly employ any personnel. Instead, the Company relies on the resources of the Manager and its affiliates to conduct the Company’s operations. See Management Agreement above.
Legal and regulatory. From time to time, the Company may be subject to liability under laws and government regulations and various claims and legal actions arising in the ordinary course of business. Liabilities are established for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts established for those claims. Based on information currently available, management is not aware of any legal or regulatory claims that would have a material effect on the Company’s consolidated financial statements and, therefore, no accrual is required as of SeptemberJune 30, 2019.2020.
Unfunded commitments on loans held-for-investment. Certain of the Company’s commercial real estate loan agreements contain provisions for future fundingsand obligations to extend credit to its borrowers generally to finance lease-related or capital expenditures.through its unfunded loan commitments over the contractual period of its loans. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company had unfunded loan commitments of $667.0$677.7 million and $626.2$748.9 million, respectively, on loans held-for-investment, which it expects to fund, subject to the satisfaction of any conditions precedent to such commitments, over the tenure of these loans, which have a weighted average future funding period of approximately three years. These commitments generally provide funding for lease-related or capital improvement expenditures, as well as interest and carry costs, all of which will vary depending on the progress of capital improvement projects, leasing and cash flows at the properties that serve as collateral for the Company’s loans. Therefore, the exact timing and amounts of such loan balance future fundings are generally uncertain and will depend on the current and future performance of the collateral properties. Due to the COVID-19 pandemic and its impact on the global and U.S. economies and the U.S. commercial real estate market, the pace of lease-related or capital improvement expenditures may be slower than otherwise expected, and the pace of associated future fundings relating to these capital needs accordingly may be similarly slower; however, the exact timing and amounts are uncertain. The Company typically finances the funding of its loan commitments on terms generally consistent with expirations dates withinits overall financing facilities; however, most of its financing agreement counterparties are not obligated to fund their ratable portion of these loan commitments over time and have varying degrees of discretion over future loan funding obligations, including the next three years.advance rates on their fundings. The Company may be obligated to fund loan commitments with respect to a pledged asset even if the applicable financing counterparty will not fund their ratable portion of the loan commitment and/or has made margin calls with respect to such pledged asset. As a result of the COVID-19 pandemic and the increased degree of uncertainty it has created, the Company’s financing agreement counterparties may be less likely to finance its future loan funding commitments than they were prior to the COVID-19 pandemic.
Note 16.13. Preferred Stock
In connection with the Formation Transaction, the Company issued 1,000 shares of its 10% cumulative redeemable preferred stock to Two Harbors, which immediately sold such preferred stock to an unaffiliated third-party investor. The Company’s preferred stock ranks senior to the rights of holders of the Company’s common stock, but junior to all other classes or series of preferred stock that may be issued. The holders of the preferred stock are entitled to receive, when, as and if authorized and declared by the Company, cumulative cash dividends at the rate of 10% per annum of the $1,000 liquidation preference per share of the preferred stock. Such dividends accrue on a daily basis and are cumulative from and including the initial issue date of the preferred stock.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
The Company has the option at any time after five years from the initial issue date to redeem the preferred stock at a redemption price of $1,000 per share, plus any accrued and unpaid dividends. At any time after six years from the initial issue date, the Company will, at the request of any preferred stockholder, repurchase the holder’s preferred stock at a price of $1,000 per share, plus any accrued and unpaid dividends. During the three and ninesix months ended SeptemberJune 30, 2020, the Company declared dividends to the preferred stockholder of $25,000 and $50,000, respectively. During the three and six months ended June 30, 2019, the Company declared dividends to the preferred stockholder of $25,000 and $75,000, respectively. During the three and nine months ended September 30, 2018, the Company declared dividends to the preferred stockholder of $25,000 and $75,000,$50,000, respectively.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 17.14. Stockholders’ Equity
Common Stock
On June 28, 2017, the Company completed the IPO of 10,000,000 shares of its common stock at a price of $19.50 per share, for gross proceeds of $195.0 million. Net proceeds to the Company were approximately $181.9 million, after accounting for issuance costs of approximately $13.1 million. Concurrently with the closing of the IPO, the Company issued 33,071,000 shares of its common stock to Two Harbors in exchange for the equity interests in the Predecessor, which became the Company’s wholly owned indirect subsidiary as a result of the transaction. On November 1, 2017, Two Harbors distributed to its common stockholders the 33,071,000 shares of the Company’s common stock it had acquired in connection with the Formation Transaction, allowing the Company’s market capitalization to be fully floating.
On February 5, 2019, the Company closed an underwritten public offering of 6,850,000 shares of its common stock. The Company received total proceeds from the offering of approximately $130.2 million. In addition, the Company granted the underwriters a thirty-day option to purchase up to an additional 1,027,500 shares of its common stock, which was exercised in full on March 6, 2019 resulting in proceeds of $19.5 million from exercise of the underwriters option. In connection with this offering, the Manager agreed to pay approximately $1.6 million of the underwriting fees and discounts.
As of SeptemberJune 30, 2019,2020, the Company had 54,853,20555,205,082 shares of common stock outstanding. The following table presents a reconciliation of the common shares outstanding for the ninesix months ended SeptemberJune 30, 20192020 and 2018:
|
| | | | |
| Number of common shares |
| |
| |
| |
| |
| |
| |
Common shares outstanding, December 31, 20172018 | 43,235,10343,621,174 |
|
| Issuance of common stock | 10,954,924 | |
Issuance of restricted stock (1) | 221,131277,107 |
|
| |
Common shares outstanding, SeptemberJune 30, 20182019 | 43,456,23454,853,205 |
|
| |
Common shares outstanding, December 31, 20182019 | 43,621,17454,853,205 |
|
| Issuance of common stock | 10,954,924— |
|
Issuance of restricted stock (1) | 277,107351,877 |
|
Common shares outstanding, September 30, 2019 | 54,853,205 |
|
____________________
| |
(1)Common shares outstanding, June 30, 2020 | Represents shares of55,205,082
| restricted stock granted under the 2017 Equity Incentive Plan. See Note 18 |
____________________
(1)Represents shares of restricted stock granted under the Company’s 2017 Equity Incentive Plan, net of forfeitures. See Note 15 - Equity Incentive Plan for additional information.
Distributions to Stockholders
As a result of the unprecedented market conditions and uncertainty caused by the COVID-19 pandemic, the Company has temporarily suspended the payment of dividends on its common stock in order to conserve available liquidity. The Company will continue to evaluate its dividend policy in respect of future quarters based upon customary considerations, including market conditions and distribution requirements to maintain REIT status. The following table presents cash dividends declared by the Company on its common stock from December 31, 20172018 through SeptemberJune 30, 2019:2020:
|
| | | | | | | | |
| Declaration Date | | Record Date | | Payment Date | | Cash Dividend Per Share |
September 18, 2019 | | October 3, 2019 | | October 18, 2019 | | $ | 0.42 |
|
June 20, 2019 | | July 5, 2019 | | July 19, 2019 | | $ | 0.42 |
|
March 20, 2019 | | April 1, 2019 | | April 18, 2019 | | $ | 0.42 |
|
December 19, 2018 | | December 31, 2018 | | January 18, 2019 | | $ | 0.42 |
|
September 20, 2018 | | October 2, 2018 | | October 18, 2018 | | $ | 0.42 |
|
June 20, 2018 | | July 2, 2018 | | July 18, 2018 | | $ | 0.40 |
|
March 15, 2018 | | March 29, 2018 | | April 18, 2018 | | $ | 0.38 |
|
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
| | | | | | | | | | | | | | | | | | | | |
| Declaration Date | | Record Date | | Payment Date | | Cash Dividend Per Share |
| | | | | | |
| | | | | | |
| December 18, 2019 | | December 31, 2019 | | January 17, 2020 | | $ | 0.42 | |
| September 18, 2019 | | October 3, 2019 | | October 18, 2019 | | $ | 0.42 | |
| June 20, 2019 | | July 5, 2019 | | July 19, 2019 | | $ | 0.42 | |
| March 20, 2019 | | April 1, 2019 | | April 18, 2019 | | $ | 0.42 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Share Repurchase Program
On November 21, 2018, the Company's Board of Directors authorized aThe Company’s Share Repurchase Program which allows for the Company to repurchase of up to an aggregate of 2,000,000 shares of itsthe Company’s common stock. The shares are expected to be repurchased from time to time through privately negotiated transactions or open market transactions, including pursuant to a trading plan in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, or by any combination of such methods. The manner, price, number and timing of share repurchases will be subject to a variety of factors, including market conditions and applicable SEC rules. The Company has not repurchased any of its common stock since the program was authorized.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
At-the-Market Offering
On November 21, 2018, theThe Company entered intois party to an equity distribution agreement under which the Company may sell up to an aggregate of 8,000,000 shares of its common stock from time to time in any method permitted by law deemed to be an “at the market”“at-the-market” offering as defined in Rule 415 under the Securities Act of 1933, as amended, or the Securities Act. As of SeptemberJune 30, 2019,2020, 3,242,364 shares of common stock had been sold under the equity distribution agreement for total accumulated net proceeds of approximately $61.2 million, of which 2,663,095 and 3,077,424 shares were sold for totalnet proceeds of $50.3 million and $58.1 million during the ninethree and six months ended SeptemberJune 30, 2019.2019, respectively. Additionally, the Company received a base management fee reimbursement from the Manager of $0.1 million and $0.1 million for stock sold under the equity distribution agreement during the ninethree and six months ended SeptemberJune 30, 2019.2019, respectively. No shares were sold during the three and six months ended SeptemberJune 30, 2019 or the three and nine months ended September 30, 2018.2020.
Accumulated Other Comprehensive (Loss) Income (Loss)
Accumulated other comprehensive (loss) income (loss) at SeptemberJune 30, 20192020 and December 31, 20182019 was as follows:
|
| | | | | | | |
| (in thousands) | September 30,
2019 | | December 31,
2018 |
| Available-for-sale securities | | | |
| Unrealized gains | $ | 32 |
| | $ | — |
|
| Unrealized losses | — |
| | (192 | ) |
| Accumulated other comprehensive income (loss) | $ | 32 |
| | $ | (192 | ) |
| | | | | | | | | | | |
| (in thousands) | June 30,
2020 | | December 31,
2019 |
| Available-for-sale securities | | | |
| Unrealized gains | $ | — | | | $ | 32 | |
| Unrealized losses | — | | | — | |
| Accumulated other comprehensive (loss) income | $ | — | | | $ | 32 | |
Reclassifications out of Accumulated Other Comprehensive (Loss) Income (Loss)
The Company reclassifies unrealized gains and losses on AFS securities in accumulated other comprehensive (loss) income to net (loss) income upon the recognition of any provision for credit losses as the allowance for credit losses on individual AFS securities is increased or decreased. For the three and six months ended June 30, 2020, the Company reclassified $0.5 million and $0.3 million, respectively, of unrealized losses on AFS securities out of accumulated other comprehensive (loss) income to provision for credit losses on the condensed consolidated statement of comprehensive (loss) income. The Company did not record any reclassifications out of accumulated other comprehensive (loss) income (loss) during the three and ninesix months ended SeptemberJune 30, 2019 and 2018.2019.
Note 18.15. Equity Incentive Plan
The Company’s 2017 Equity Incentive Plan, or the Plan, provides incentive compensation to attract and retain qualified directors, officers, advisors, consultants and other personnel, including certain personnel of the Manager and its affiliates. The Plan is administered by the compensation committee of the Company’s board of directors. The compensation committee has the full authority to administer and interpret the Plan, to authorize the granting of awards, to determine the eligibility of directors, officers, advisors, consultants and other personnel, including personnel of the Manager and its affiliates, to receive an award, to determine the number of shares of common stock to be covered by each award (subject to the individual participant limitations provided in the Plan), to determine the terms, provisions and conditions of each award (which may not be inconsistent with the terms of the Plan), to prescribe the form of instruments evidencing awards and to take any other actions and make all other determinations that it deems necessary or appropriate in connection with the Plan or the administration or interpretation thereof. In connection with this authority, the compensation committee may, among other things, establish performance goals that must be met in order for awards to be granted or to vest, or for the restrictions on any such awards to lapse.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
The Plan provides for grants of restricted common stock, phantom shares, dividend equivalent rights and other equity-based awards, subject to a ceiling of 3,242,306 shares available for issuance under the Plan. The Plan allows for the Company’s board of directors to expand the types of awards available under the Plan to include long-term incentive plan units in the future. If an award granted under the Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards. Unless earlier terminated by the Company’s board of directors, no new award may be granted under the Plan after the tenth anniversary of the effective date of the Plan. No award may be granted under the Plan to any person who, assuming payment of all awards held by such person, would own or be deemed to own more than 9.8% of the outstanding shares of the Company’s common stock.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
During the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Company granted 18,18969,720 and 19,17518,189 shares of common stock, respectively, to its independent directors as compensation for their service on the Company’s board of directors, pursuant to the terms of the Plan. The estimated fair value of these awards was $19.24$5.02 and $17.86$19.24 per share, respectively, on the grant date, based on the closing price of the Company’s common stock on the NYSE on such date. The shares have a one year vesting period.
Additionally, during the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Company granted 258,918297,769 and 201,956258,918 shares of restricted common stock, respectively, to key employees of the Manager and its affiliates pursuant to the terms of the Plan and the associated award agreements. The estimated fair value of these awards was $19.31$18.47 and $17.33$19.31 per share, respectively, on the grant date, based on the closing market price of the Company’s common stock on the NYSE on such date. The shares underlying the grants to such employees of the Manager vest in three equal annual installments commencing on the first anniversary of the grant date, as long as the grantee complies with the terms and conditions of his or her applicable restricted stock award agreement.
The following table summarizes the activity related to restricted common stock for the ninesix months ended SeptemberJune 30, 20192020 and 2018:2019:
|
| | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2019 | | 2018 |
| | Shares | | Weighted Average Grant Date Fair Market Value | | Shares | | Weighted Average Grant Date Fair Market Value |
| Outstanding at Beginning of Period | 321,134 |
| | $ | 18.04 |
| | 150,000 |
| | $ | 19.50 |
|
| Granted | 277,107 |
| | 19.31 |
| | 221,131 |
| | 17.38 |
|
| Vested | (136,870 | ) | | (18.20 | ) | | (49,997 | ) | | (19.50 | ) |
| Forfeited | — |
| | — |
| | — |
| | — |
|
| Outstanding at End of Period | 461,371 |
| | $ | 18.75 |
| | 321,134 |
| | $ | 18.04 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | | | 2019 | | |
| Shares | | Weighted Average Grant Date Fair Market Value | | Shares | | Weighted Average Grant Date Fair Market Value |
| Outstanding at Beginning of Period | 461,371 | | | $ | 18.75 | | | 321,134 | | | $ | 18.04 | |
| Granted | 367,489 | | | 15.92 | | | 277,107 | | | 19.31 | |
| Vested | (221,616) | | | (18.75) | | | (136,870) | | | (18.20) | |
| Forfeited | (15,612) | | | (18.68) | | | — | | | — | |
| Outstanding at End of Period | 591,632 | | | $ | 16.99 | | | 461,371 | | | $ | 18.75 | |
For the three and ninesix months ended SeptemberJune 30, 2020, the Company recognized compensation related to restricted common stock of $1.3 million and $2.7 million, respectively. For the three and six months ended June 30, 2019, the Company recognized compensation related to restricted common stock of $1.2$1.3 million and $3.6 million, respectively. For the three and nine months ended September 30, 2018, the Company recognized compensation related to restricted common stock of $1.0 million and $2.8$2.4 million, respectively.
Note 19.16. Income Taxes
The Company has elected to be taxed as a REIT under the Code for U.S. federal income tax purposes. As long as the Company qualifies as a REIT, the Company generally will not be subject to U.S. federal income taxes on that portion of its taxable income that it distributes to the extentits stockholders if it annually distributes at least 90% of its netREIT taxable income, without regard to stockholders,the deduction for dividends paid and excluding net capital gains, and does not engage in prohibited transactions. TheWhile the Company currently intends to distribute 100% of its REIT taxable income for the taxable year ending December 31, 2020 and comply with all requirements to continue to qualify as a REIT.REIT, the Company will continue to evaluate its capital and liquidity needs in light of the significant uncertainties created by the COVID-19 pandemic, including the potential for a continued and prolonged adverse impact on economic and market conditions. The majority of states also recognize the Company’s REIT status. The Company’s TRS files a separate federal tax return and is fully taxed as a standalone U.S. C-corporation. It is assumed that the Company will retain its REIT status and will incur no REIT level taxation as it intends to comply with the REIT regulations and annual distribution requirements.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
The following table summarizes the tax provision recorded at the taxable subsidiary level for the three and nine months ended September 30, 2019 and 2018:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
| Current tax (benefit) provision: | | | | | | | |
| Federal | $ | — |
| | $ | — |
| | $ | — |
| | $ | (1 | ) |
| State | — |
| | — |
| | — |
| | 2 |
|
| Total current tax provision | — |
| | — |
| | — |
| | 1 |
|
| Deferred tax (benefit) | (1 | ) | | (1 | ) | | (4 | ) | | (3 | ) |
| Total (benefit from) provision for income taxes | $ | (1 | ) | | $ | (1 | ) | | $ | (4 | ) | | $ | (2 | ) |
Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s condensed consolidated financial statements of a contingent tax liability for uncertain tax positions. Additionally, there were no amounts accrued for penalties or interest as of or during the periods presented in these condensed consolidated financial statements.
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
Note 20.17. Earnings Per Share
The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted earnings per share for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018:2019:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| (in thousands, except share data) | 2019 | | 2018 | | 2019 | | 2018 |
| Numerator: | | | | | | | |
| Net income attributable to common stockholders - basic | $ | 17,367 |
| | $ | 16,540 |
| | $ | 52,463 |
| | $ | 46,303 |
|
Interest expense attributable to convertible notes (1) | — |
| | 2,207 |
| | — |
| | 6,576 |
|
| Net income attributable to common stockholders - diluted | $ | 17,367 |
| | $ | 18,747 |
| | $ | 52,463 |
| | $ | 52,879 |
|
| Denominator: | | | | | | | |
| Weighted average common shares outstanding | 54,391,834 |
| | 43,135,100 |
| | 52,017,520 |
| | 43,103,600 |
|
| Weighted average restricted stock shares | 461,371 |
| | 321,134 |
| | 474,804 |
| | 322,509 |
|
| Basic weighted average shares outstanding | 54,853,205 |
| | 43,456,234 |
| | 52,492,324 |
| | 43,426,109 |
|
| Effect of dilutive shares issued in an assumed conversion of the convertible senior notes | — |
| | 7,195,378 |
| | — |
| | 7,190,155 |
|
| Diluted weighted average shares outstanding | 54,853,205 |
| | 50,651,612 |
| | 52,492,324 |
| | 50,616,264 |
|
| Earnings Per Share | | | | | | | |
| Basic | $ | 0.32 |
| | $ | 0.38 |
| | $ | 1.00 |
| | $ | 1.07 |
|
| Diluted | $ | 0.32 |
| | $ | 0.37 |
| | $ | 1.00 |
| | $ | 1.04 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | | | |
| June 30, | | | | June 30, | | | | |
| (in thousands, except share data) | 2020 | | 2019 | | 2020 | | 2019 | | |
| Numerator: | | | | | | | | | |
| Net (loss) income attributable to common stockholders - basic | $ | (1,758) | | | $ | 18,152 | | | $ | (38,974) | | | $ | 35,096 | | | |
Interest expense attributable to convertible notes (1) | — | | | 4,474 | | | — | | | — | | | |
| Net (loss) income attributable to common stockholders - diluted | $ | (1,758) | | | $ | 22,626 | | | $ | (38,974) | | | $ | 35,096 | | | |
| Denominator: | | | | | | | | | |
| Weighted average common shares outstanding | 54,559,798 | | | 53,446,531 | | | 54,529,399 | | | 50,810,687 | | | |
| Weighted average restricted stock shares | 598,485 | | | 507,103 | | | 577,948 | | | 481,631 | | | |
| Basic weighted average shares outstanding | 55,158,283 | | | 53,953,634 | | | 55,107,347 | | | 51,292,318 | | | |
| Effect of dilutive shares issued in an assumed conversion of the convertible senior notes | — | | | 13,670,761 | | | — | | | — | | | |
| Diluted weighted average shares outstanding | 55,158,283 | | | 67,624,395 | | | 55,107,347 | | | 51,292,318 | | | |
| (Loss) earnings per share | | | | | | | | | |
| Basic | $ | (0.03) | | | $ | 0.34 | | | $ | (0.71) | | | $ | 0.68 | | | |
| Diluted | $ | (0.03) | | | $ | 0.33 | | | $ | (0.71) | | | $ | 0.68 | | | |
____________________
| |
(1) | Includes a nondiscretionary adjustment for the assumed change in the management fee calculation. |
For the three and ninesix months ended SeptemberJune 30, 2019,2020, excluded from the calculation of diluted earnings per share is the effect of adding back $4.5 million and $13.5$9.0 million, respectively, of interest expense, net of nondiscretionary adjustment for the assumed change in the management fee calculation, and 13,670,76113,717,782 and 13,665,61913,717,782 weighted average common share equivalents, respectively, related to the assumed conversion of the Company’s convertible senior notes, as their inclusion would be antidilutive.
GRANITE POINT MORTGAGE TRUST INC.
Notesdiluted earnings per share is the effect of adding back $9.0 million of interest expense, net of nondiscretionary adjustment for the assumed change in the management fee calculation, and 13,663,006 weighted average common share equivalents related to the Condensed Consolidated Financial Statements (unaudited)
assumed conversion of the Company’s convertible senior notes, as their inclusion would be antidilutive.
Note 21.18. Related Party Transactions
The Company does not have any employees and is currently externally managed by the Manager under the terms of a management agreement entered into in connection with closing of the IPO and Formation Transaction on June 28, 2017.agreement. Under the management agreement, the Manager and its affiliates provide the Company with the personnel and resources necessary to operate the Company’s business. In exchange, the Company pays the Manager a base management fee that is equal to 1.5% of the Company’s equity, as defined in the management agreement, on an annualized basis as well as an incentive fee, which is payable, if earned, beginning in the fourth quarter of 2018, in accordance with the terms of the management agreement. For purposes of calculating the management fee, equity is adjusted to exclude any common stock repurchases as well as any unrealized gains, losses or other items that do not affect realized net income (loss), among other adjustments, in accordance with the management agreement. In addition, under the terms of an amendment to the management agreement entered into in the fourth quarter of 2018, the Manager agreed to reimburse the Company an amount related to the compensation payable to the sales agents under the Company’s equity distribution agreement by netting such amount from the base management fee payable to the Manager for the applicable quarterly period.basis. The Company incurred $3.8$4.0 million and $11.0$7.9 million, respectively, as a management fee to the Manager for the three and ninesix months ended SeptemberJune 30, 2019,2020, and $3.1$3.8 million and $9.4$7.2 million, respectively, as a management fee to the Manager for the three and ninesix months ended SeptemberJune 30, 2018.2019.
In addition, incentive fees, if earned, are payable to the Company’s Manager, as defined in the management agreement. No incentive fees were incurred for the three and six months ended June 30, 2020 or the three months ended June 30, 2019. The Company also incurred $0.2 million as an incentive fee to the Manager for the ninesix months ended SeptemberJune 30, 2019. No incentive fees were incurred for the three months ended September 30, 2019 or for the three and nine months ended September 30, 2018. See further discussion of the base management fee and incentive fee calculations in Note 1512 - Commitments and Contingencies and further discussion of base management fee reimbursements for common stock sold under the Company’s equity distribution agreement in Note 1714 - Stockholder’s Equity.
On March 2, 2020, the Company announced that it has agreed to a process with the Manager to internalize the Company’s management function. If the internalization is completed, the management agreement will be terminated and therefore the
GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements
Company will no longer pay a management fee or reimburse expenses. See further discussion of the related arbitration in Note 12 - Commitments and Contingencies.
The Company reimburses the Manager for certain direct and allocated costs incurred by the Manager on behalf of the Company. During the three and ninesix months ended SeptemberJune 30, 2020, direct and allocated costs totaled approximately $1.5 million and $9.3 million, respectively. During the three and six months ended June 30, 2019, direct and allocated costs totaled approximately $1.7 million and $10.0 million, respectively. During the three and nine months ended September 30, 2018, direct and allocated costs totaled approximately $1.5 million and $6.7$8.3 million, respectively.
In addition, during the ninesix months ended SeptemberJune 30, 2019, the Manager paid the underwriters an amount equal to $0.20 per share for each share issued in connection with the Company’s underwritten public offering of its common stock and the related option exercised by the underwriters to purchase additional shares of the Company’s common stock.
The Company has contractual relationships with a majority of its third-party vendors and pays those vendors directly. The Company will continue to have certain costs allocated to it by the Manager under the management agreement for compensation, data services, technology and certain office lease payments.
The Company recognized $1.2$1.3 million and $3.6$2.7 million of compensation during the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, and $1.0$1.3 million and $2.8$2.4 million of compensation during the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively, related to restricted common stock issued to employees of the Manager and the Company’s independent directors pursuant to the Plan. See Note 1815 - Equity Incentive Plan for additional information.
The terms of these transactions may have been different had they been transacted with an unrelated third-party.
Note 22.19. Subsequent Events
In order to enhance the Company’s liquidity position given the current highly uncertain macroeconomic and capital markets environment caused by the COVID-19 pandemic, the Company engaged in the following transactions subsequent to June 30, 2020:
Investment Portfolio Activity
On July 30, 2020, the Company sold senior floating rate loans with aggregate total loan commitments of approximately $206.3 million and total unpaid principal balance of approximately $190.9 million, for a total sale price of approximately $181.4 million. The total amortized cost, net of allowance for credit losses, of these loans held-for-investment was $188.8 million as of June 30, 2020.
Financing Activity
On July 2, 2020, the Company entered into an amendment to the repurchase financing facility with JPMorgan Chase Bank, N.A. This amendment, among other things, increased the maximum facility amount by approximately $54.1 million to a total maximum facility amount of $504.1 million during an upsize period that ends on November 2, 2020, with an option to extend such upsize to December 31, 2020, subject to the terms and conditions of the amendment.
Events subsequent to SeptemberJune 30, 2019,2020 were evaluated through the date these financial statements were issued and no other additional events were identified requiring further disclosure in these condensed consolidated financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Our Company
We are a Maryland corporation thatGranite Point Mortgage Trust Inc. 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. We were formed to continue and expand the commercial real estate lending business established by Two Harbors Investment Corp., or Two Harbors, a publicly traded hybrid mortgage real estate investment trust. In the first quarter of 2015, Two Harbors established its commercial real estate lending business, TH Commercial Holdings LLC (now known as GP Commercial Holdings LLC), collectively with its subsidiaries, our Predecessor. Concurrently with the closing of our initial public offering, or the IPO, on June 28, 2017, we completed a formation transaction, or the Formation Transaction, pursuant to which we acquired from Two Harbors the equity interests in our Predecessor, including its portfolio of commercial real estate debt investments and related financing. In exchange, we issued 33,071,000 shares of our common stock and 1,000 shares of our 10% cumulative redeemable preferred stock to Two Harbors. Upon the completion of the Formation Transaction, our Predecessor became our wholly owned indirect subsidiary. On November 1, 2017, Two Harbors distributed to its common stockholders the 33,071,000 shares of our common stock it had acquired in connection with the Formation Transaction, allowing our market capitalization to be fully floating. We are currently externally managed by Pine River Capital Management L.P., or our Manager.
We are a long-term, fundamental value-oriented investor. We construct our investment portfolio on a loan-by-loan basis, emphasizing rigorous credit underwriting, selectivity and diversification, and assess each investment from a fundamental value perspective relative to other opportunities available in the market. Our primary target investments are directly originated floating-rate performing senior commercial mortgage loans, typically with terms of three to five years, usually ranging in size from $25 million to $150 million. We typically provide intermediate-term bridge or transitional financing for a variety of purposes, including acquisitions, recapitalizations, refinancings and a range of business plans including lease-up, renovation, repositioning and repurposing of the property. We generally target the top 25, and up to the top 50, metropolitan statistical areas in the United States, or MSAs. We believe that those markets provide ample supply of high credit quality properties to lend against, sufficient numbers of owners and sponsors with institutional attributes, and adequate market liquidity. We believe this approach enables us to deliver attractive risk-adjusted returns to our stockholders while preserving our capital base through diverse business cycles.
Our origination strategy relies on our extensive and longstanding direct relationships with a wide array of national, regional and local private owner/operators, private equity firms, funds, REITs, brokers and co-lenders. Our team’s reach across the United States and active dialogue with market participants has produced a significant volume of investment opportunities since our Predecessor’s formation, and our reputationoperate as a reliable counterparty has led to multiple investment opportunities with repeat clients. We have deep experience in the commercial real estate finance markets, with each of the senior members of our team of commercial real estate professionals having over 20 years of experience in commercial real estate debt markets.
We believe that the U.S. commercial real estate debt markets continue to offer enduring investment opportunities. A significant amount of commercial real estate debt is scheduled to mature over the next several years, and there is an ongoing need for financing of acquisitions, repositionings and recapitalizations. Over the past several years, non-traditional lenders have grown their market share at the expense of traditional financing sources such as banks (which have historically accounted for approximately half of the market), and CMBS originators. As a result, we believe that there are significant opportunities for us to continue to originate floating-rate senior commercial real estate loans on transitional properties at attractive risk-adjusted returns.
We have elected to be treated as atrust, or REIT, for U.S. federal income tax purposes. To qualify as a REIT, we are required to meet certain investment and operating tests and annual distribution requirements. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to stockholders, do not participate in prohibited transactions and maintain our intended qualification as a REIT. However, certain activities that we may perform may cause us to earn income which will not be qualifying income for REIT purposes. We have designated one of our subsidiaries as a taxable REIT subsidiary, or TRS, as defined inunder the Internal Revenue Code to engage in such activities, and we may form additional TRSs inof 1986, as amended, or the future.Code. We also 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.
Our Portfolio
COVID-19 Pandemic
As a result of September 30, 2019, our investment portfolio consisted of 116 commercial real estate loans and two commercial mortgage-backed securities, or CMBS, having an aggregate principal balance of $4.0 billion and $32.4 million, respectively,
with an additional $667.0 million of potential future funding obligations, diversified across geographies, property types, structures and credits.
We focus on originating senior commercial mortgage loans backed by different types of commercial real estate properties located in various markets acrossthe global COVID-19 pandemic, numerous countries, including the United States. We may, from timeStates, have declared national emergencies and have reacted by instituting quarantines, restrictions on travel and temporarily closing non-essential businesses, including offices and hotels. Many states in the U.S. instituted varying degrees of “shelter-in-place” guidelines or orders and other measures designed to time, investmitigate the impact of COVID-19. Such actions have resulted in other debtsignificant macroeconomic disruptions and debt-like commercial real estate investments. Together, we referhave adversely impacted many industries. In response, the U.S. government has implemented unprecedented actions, such as economic stimulus and interest rate cuts. However, the outbreak could have a continued adverse impact on macroeconomic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to these investmentsthe ultimate adverse impact of COVID-19 on economic and market conditions, and, as our target investments. Our target investments include:
Primary Target Investments
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• | Senior Mortgage Loans. Commercial mortgage loans that are secured by real estate and evidenced by a first priority mortgage. These loans may vary in term, may bear interest at a fixed or floating rate (although our focus is floating-rate loans), and may amortize and typically require a balloon payment of principal at maturity. These investments may encompass a whole loan or may include pari passu participations within such a mortgage loan. These loans may finance stabilized properties or properties that are subject to a business plan that is expected to enhance the value of the property through lease-up, refurbishment, updating or repositioning.
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Secondary Target Investments
As parta result, present material uncertainty and risk with respect to us and the performance of our financing strategy, we may from time-to-time syndicate senior participations in our originated senior commercial mortgage loans toinvestments.
The full extent of the impact and effects of COVID-19 will depend on future developments, including, among other investorsfactors, the duration and retain a subordinated debt position for our portfolio inspread of the form of a mezzanine loan or subordinated mortgage interest, as described below. Alternatively, we may opportunistically co-originate the investments described below with senior lenders, or acquire them in the secondary market.
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• | Mezzanine Loans. Mezzanine loans are secured by a pledge of equity interests in the property. These loans are subordinate to a senior mortgage loan, but senior to the property owner’s equity.
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• | Preferred Equity. Investments that are subordinate to any mortgage and mezzanine loans, but senior to the property owner’s common equity.
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• | Subordinated Mortgage Interests. Sometimes referred to as a B-note, a subordinated mortgage interest is an investment in a junior portion of a mortgage loan. B-notes have the same borrower and benefit from the same underlying secured obligation and collateral as the senior mortgage loan, but are subordinated in priority payments in the event of default.
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• | Other Real Estate Securities. Investments in real estate that take the form of CMBS or collateralized loan obligations, or CLOs, that are collateralized by pools of real estate debt instruments, which are often senior mortgage loans, or other securities. These may be classified as available-for-sale, or AFS, securities or held-to-maturity, or HTM, securities.
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Based on current market conditions, we expect that the majority of our investments will continue to consist of senior commercial mortgage loans directly originated by us and secured by cash-flowing properties located in the United States. These investments typically pay interest at rates that are determined periodically on the basis of a floating base lending rate, primarily LIBOR plus a premium, and have an expected term between three and five years.
We may opportunistically adjust our capital allocation to our target investments,outbreak, along with the proportionrelated travel advisories, quarantines and typesrestrictions, the recovery time of investments changing over time dependingthe disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions and uncertainty with respect to the duration of the global economic slowdown. For additional discussion with respect to the potential impact of the COVID-19 pandemic on our views on, among other things, the current economicliquidity and credit environment. In addition, we may invest in assets other than our target investments, in each case subject to maintaining our qualification as a REIT for U.S. federal income tax purposescapital resources, see Liquidity and our exclusion from regulation under the Investment Company Act.Capital Resources below.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains, or incorporates by reference, not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and that are subject to the safe harbors created by such sections. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “target,” “believe,” “intend,” “seek,” “plan,” “goals,” “future,” “likely,” “may” and similar expressions or their negative forms, or by references to strategy, plans or intentions. By their nature, forward-looking statements speak only as of the date they are made, are not statements of historical fact or guarantees of future performance and are subject to risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify, in particular due to the uncertainties created by the COVID-19 pandemic, including its impact of COVID-19 on our business, financial performance and operating results. Our expectations, beliefs and estimates are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and estimates will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2018,2019, under the caption “Risk Factors.” These risks may also be further heightened by the continued impact of the COVID-19 pandemic. Other risks, uncertainties and factors that could cause actual results to differ materially from those projected are described below and may be described from time to time in reports we file with the SEC, including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.
Important factors, among others, that may affect our actual results include:
•the severity and duration of the ongoing COVID-19 pandemic;
•potential risks and uncertainties relating to the ultimate geographic spread of COVID-19;
•actions taken by governmental authorities to contain the COVID-19 outbreak or to mitigate its impact;
•the potential negative impacts of COVID-19 on the global economy, including the sudden severe rise in unemployment, and the impacts of COVID-19 on our financial condition, business operations and value of our assets, as well as the financial condition and operations of our borrowers;
•the general political, economic and competitive conditions in the markets in which we invest;
defaults by borrowers in paying debt service on outstanding indebtedness and borrowers' abilities to manage and stabilize properties;
•our ability to obtain or maintain financing arrangements on terms favorable to us or at all;all, particularly in light of the current disruption in the financial markets;
•the level and volatility of prevailing interest rates and credit spreads;
•reductions in the yield on our investments and increases in the cost of our financing;
•general volatility of the securities markets in which we participate;participate and the potential need to post additional collateral on our financing arrangements;
•the return or impact of current or future investments;
•changes in our business, investment strategies or target investments;
•allocation of investment opportunities to us by our Manager;
•increased competition from entities investing in our target assets;investments;
•effects of hedging instruments on our target investments;
•changes in governmental regulations, tax law and rates and similar matters;
•our ability to maintain our qualification as a REIT for U.S. federal income tax purposes and our exclusion from registration under the Investment Company Act;
•availability of desirable investment opportunities;
•availability of qualified personnel and our relationship with our Manager;
•the time and cost of the process to internalize our management function;
•estimates relating to our ability to make distributions to our stockholders in the future;
•hurricanes, earthquakes and other natural disasters, acts of war and/or terrorism, pandemics, such as COVID-19, and other events that may cause unanticipated and uninsured performance declines and/or losses to us or the owners and operators of the real estate securing our investments;
•deterioration in the performance of the properties securing our investments that may cause deterioration in the performance of our investments and, potentially, principal losses to us;us, including the risk of impairment charges and any impact on our ability to satisfy the covenants and conditions in our debt agreements; and
•difficulty or delays in redeploying the proceeds from repayments of our existing investments.
This Quarterly Report on Form 10-Q may contain statistics and other data that, in some cases, have been obtained or compiled from information made available by mortgage loan servicers and other third-party service providers.
Factors Affecting our Operating Results
The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest income, the availability and cost of financing for us, the market value of our assets, credit performance of our assets and the supply of, and demand for, commercial real estate loans, other commercial real estate debt instruments and other financial assets available for investment in the market.market and available as a source of refinancing of our assets. Our net interest income, which reflects the amortization of origination fees and direct costs, is recognized based on the contractual rate and the outstanding principal balance of the loans we originate. The objective of the interest method is to arrive at periodic interest income that yields a level rate of return over the loan term. Interest rates vary according to the type of loan or security, conditions in the financial markets, credit worthiness of our borrowers, competition and other factors, none of which can be predicted with any certainty. Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by our borrowers. We continue to monitor the effects on each of these factors as a result of the COVID-19 pandemic and how they will affect the results of our operations.
Loan Originations
Our business model is mainly focused on directly originating, investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments. As a result of this strategy, our operating performance is subject to overall market demand for commercial real estate loan products and other debt and debt-like commercial real estate investments. We manage originations and acquisitions of our target investments by diversifying our investment portfolio across geographical regions and local markets, property types, borrower types, loan structures and types. We do not limit our investments to any number of geographical areas or property types for our originations and will continue to develop a well-diversified investment portfolio. Additionally, our team has extensive experience originating and acquiring commercial real estate loans and other debt and debt-like commercial real estate investments, through a network of long-standing relationships with borrowers, sponsors and industry brokers.
Financing Availability
We are subject to availability and cost of financing to successfully execute on our business strategy and generate attractive risk-adjusted returns to our stockholders. Much of our financing is in the form of repurchase agreements, or other types of credit facilities, provided to us by our lender counterparties. We mitigate this counterparty risk by seeking to diversify our lending partners, focusing on establishing borrowing relationships with strong counterparties and continuously monitoring them through a thoughtful approach to counterparty risk oversight. Additionally, as part of our broader risk management strategy, and to the extent available in the market, we finance our business through other means which may include, but not be limited to, securitizations, note sales and issuance of unsecured debt and equity instruments. We will continue to actively explore additional types of funding facilities in order to further diversify our financing sources. The COVID-19 pandemic has resulted in significant disruptions in financial markets and uncertainty about the overall macroeconomic outlook. Impending declines in economic conditions could negatively impact real estate and real estate capital markets, which could make it more difficult for us to obtain or maintain financing.
We finance pools of our commercial real estate loans through collateralized loan obligations, or CLOs, retaining the subordinate securities in our investment portfolio. Our CLOs are accounted for as financings with the non-retained securitized debt obligations recognized on our balance sheet.
Credit Risk
We are subject to varying degrees of credit risk in connection with our target investments. We seek to mitigate this risk by seeking to originate or acquire assets of higher quality at appropriate rates of return given anticipated and unanticipated losses, by employing a comprehensive review and selection process and by proactively monitoring originated or acquired investments. Nevertheless, unanticipated credit losses, including as a result of the COVID-19 pandemic, could occur that could adversely impact our operating results.
We employ a long-term, fundamental value-oriented investment strategy and we aim to, on a loan-by-loan basis, construct an investment portfolio that is well-diversified across property types, geographies and sponsors. However, any potential negative impacts on our business caused by the COVID-19 pandemic may be heightened by the fact that we are not required to observe specific diversification criteria, which means that our investments may be relatively concentrated in certain property types, geographical areas or loan categories that may be more adversely affected by the pandemic than others. For example, certain of our loans are secured by office, multifamily, hotel, and retail properties. Federal and state mandates implemented to control the spread of the virus, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders, have and are likely to continue to negatively impact the hotel and retail industries, which could adversely affect our assets secured by such properties. Also, changes in how certain types of commercial properties are operated to facilitate social distancing and other techniques intended to control the impact of the pandemic, have impacted and are likely to continue to impact, our investments secured by these properties. Additionally, 56.1% of our portfolio measured by carrying value is secured by properties located in the southwestern, western and southeastern regions of the United States, which have recently experienced a surge in COVID-19 infection rates prompting certain states and municipalities to slow or reverse reopening of the local economies. Delayed re-openings could adversely affect our loan investments secured by properties in these regions.
Operating Expenses - Investment Management and Corporate Overhead
We incur significant general and administrative costs, including certain costs related to being a public company and costs incurred on our behalf by our Manager. We rely on our Manager to provide, or obtain on our behalf, the personnel and services necessary for us to conduct our business because we have no employees of our own. Our Manager performs these services for us and provides us with a comprehensive suite of investment and portfolio management services.
Under the management agreement with our Manager, we pay all costs and expenses of our Manager incurred on our behalf in order to operate our business, as well as all compensation costs for certain personnel providing services to us under the management agreement, other than personnel directly involved in supporting the investment function. We also pay our Manager a quarterly base management fee equal to 0.375% (a 1.50% annual rate) of our equity and an incentive fee, which is payable, if earned, beginning in the fourth quarter of 2018, as defined in the management agreement. See further discussion of the base management fee and incentive fee calculations in Note 1512 - Commitments and Contingencies of the notes to the condensed consolidated financial statements (unaudited).included in this Quarterly Report on Form 10-Q.
We previously announced that we have agreed to a process with our Manager to internalize the Company’s management function. For further discussion of the related arbitration, see “Legal Proceedings” in Part II, Item 1 of this Quarterly Report on Form 10-Q. If the internalization is completed, the management agreement will be terminated and, therefore, we will no longer pay a management fee and reimburse expenses. See “Business - Our Manager” in Item 1 and “Risks Relating to Our Relationship With Our Manager” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019.
We are continuing to monitor the COVID-19 pandemic and its impact on our operating partners, financing sources, borrowers and their tenants, and the economy as a whole. The magnitude and duration of the COVID-19 pandemic, and its impact on our operations, liquidity and availability of financing, are uncertain and continue to evolve. To the extent that our borrowers and their tenants, property sponsors and financing sources continue to be impacted by the COVID-19 pandemic, it could have a material adverse effect on our liquidity and capital resources. Given the current highly uncertain environment, we may incur additional operating expenses for a period of time, which may be meaningful, related to actively managing our investment portfolio, our funding sources and exploring additional financing and capital sources to help us better manage through this period of economic uncertainty and market dislocation.
Market Conditions
We believe thatPrior to the COVID-19 pandemic, the commercial real estate debt markets continue to offeroffered compelling investment opportunities, especially when approached fundamentally, with a focus on strong credit and cash flow characteristics and high qualityhigh-quality borrowers and sponsors. These investment opportunities arewere supported by active real estate transaction volumes, continuous need for refinancing of legacy loans and borrower and sponsor demand for debt capital to renovate, reposition or redevelop their properties. Additionally, the stricter regulatory environment after the financial crisis from 2007 to 2009 for traditional providers of financing in this market, such as banks and insurance companies, limitslimited the capacity of available funding for certain types of commercial real estate loans which comprisecomprised a large part of our target investments. The COVID-19 pandemic has created a high degree of uncertainty with respect to the overall economic environment along with the negative impact it has had on many segments of the commercial real estate market, including a significant decline in real estate transaction volume combined with severe dislocations in the financing markets. We believe that, this reduced funding capacity inover time, as the market, combined with strong demand from borrowers, continuesmarkets return to more normalized levels of activity and the ultimate economic recovery takes place, U.S. commercial real estate will continue to be viewed as an attractive asset class and will provide us with the opportunities consistent with our investment strategy to invest our capital and generate attractive, risk-adjusted returns for our stockholders.stockholders over the long-term. Certain segments of the commercial real estate market, such as lodging and retail, have been affected more significantly than others, resulting in multiple retail sector bankruptcies, for example, as more consumer demand has shifted to internet related purchases. This retail property stress has benefited the industrial sector, which has seen increased demand for “last-mile” distribution sites in certain markets. The lodging sector has also experienced significant dislocation and the general market expectation is that it will take a while for it to recover considering the social distancing and further shut-down recommendations by local and state officials in select locations. The multifamily sector has performed relatively well through this crisis though the future path may be dependent to a degree on additional federal government stimulus. Office properties have performed well, though there has been a noticeable slowdown in leasing activity, but the longer-term impact of the COVID-19 pandemic remains uncertain considering remote working and other potential operational changes by the tenants.
Due to the ongoing COVID-19 pandemic in the United States and globally, most of our borrowers, sponsors, their tenants, the properties serving as collateral on our loan investments, and the economy as a whole have been, and will continue to be, adversely affected. The magnitude and duration of the COVID-19 pandemic and its impact on our borrowers and their tenants, cash flows and future results of operations could be significant and will largely depend on future developments, which remain highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic, the success of actions taken to contain or treat the pandemic and reactions by consumers, companies, governmental entities and capital markets. The prolonged duration and impact of the COVID-19 pandemic could materially disrupt our business operations and impact our financial condition and performance, and our liquidity and ability to pay dividends, including the dividend on our common stock, which has been temporarily suspended since the first quarter of 2020.
The COVID-19 pandemic has resulted in significant disruptions in financial markets, business shutdowns and uncertainty about how the United States and global economy will perform over the near term. Possible future declines in rental rates and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal, to attract new tenants or rent abatements for tenants severely impacted by the COVID-19 pandemic may result in decreases in cash flows to our borrowers and potentially in defaults in paying debt service on outstanding indebtedness to us, which could adversely impact our results of operations and financial performance. Impending declines in economic conditions could negatively impact real estate and real estate capital markets and result in lower occupancy, lower rental rates and declining values in our portfolio, which could adversely impact the value of our investments, making it more difficult for us to pay dividends or meet our financing obligations in the future.
Allowance for Credit Losses
In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU, 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the incurred loss model under existing guidance with a Current Expected Credit Loss, or CECL, model for instruments measured at amortized cost, and require entities to record allowances for AFS debt securities rather than reduce the carrying amount, as they did under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. In addition, the new model applies to off-balance sheet credit exposures, such as unfunded loan commitments. ASU 2016-13 was adopted through a cumulative-effect adjustment to cumulative earnings as of January 1, 2020.
The allowance for credit losses required under ASU 2016-13 is a valuation account that is deducted from the amortized cost basis of related loans and debt securities on our consolidated balance sheets, and which reduces our total stockholders’ equity. The initial allowance for credit losses recorded on January 1, 2020 was reflected as a direct charge to cumulative earnings; however, going forward, changes to the allowance for credit losses are recognized through net income on our consolidated statements of operations. While ASU 2016-13 does not require any particular method for determining the allowance for credit losses, it does specify the allowance should be based on relevant information about past events, including historical loss experience, current portfolio, market conditions and reasonable and supportable forecasts for the duration of each respective loan. In addition, other than a few narrow exceptions, ASU 2016-13 requires that all financial instruments subject to the CECL model have some amount of allowance for credit losses to reflect the GAAP principal underlying the CECL model that all loans, debt securities and similar assets have some inherent risk of loss, regardless of credit quality, subordinate capital or other mitigating factors.
Our loans typically include commitments to fund incremental proceeds to our borrowers over the life of the loan. Those future funding commitments are also subject to an allowance for credit losses. The allowance for credit losses related to future loan fundings is recorded as a component of other liabilities on our consolidated balance sheets and not as an offset to the related loan balance. This allowance for credit losses is estimated using the same process outlined below for our outstanding loan balances and changes in this component of the allowance for credit losses will similarly flow through our consolidated statement of operations.
Our implementation process included a selection of a credit loss analytical model, completion and documentation of policies and procedures, changes to internal reporting processes and related internal controls and additional disclosures. A control framework for governance, data, forecast and model controls was developed to support the CECL process. The allowance for credit losses is estimated on a quarterly basis and represents management’s estimates of current expected credit losses in the Company’s investment portfolio. Pools of loans with similar risk characteristics are collectively evaluated while loans that no longer share risk characteristics with loan pools are evaluated individually. Estimating an allowance for credit losses is inherently subjective, as it requires management to exercise significant judgment in establishing appropriate factors used to determine the allowance and a variety of subjective assumptions, including (i) determination of relevant historical loan loss data sets, (ii) the expected timing and amount of future loan fundings and repayments, (iii) the current credit quality of loans and operating performance of loan collateral and our expectations of performance, (iv) selecting the forecast for macroeconomic conditions, and (v) determining the reasonable and supportable forecast period. The allowance for loan losses also includes qualitative adjustments to bring the allowance to the level management believes is appropriate based on factors that have not otherwise been fully accounted for, including adjustments for foresight risk, input imprecisions and model imperfections. Foresight risk reflects the inherent imprecision in forecasting economic variables, including determining the depth and duration of economic cycles and their impact on relevant economic variables. Input imperfection factors address the risk that certain model inputs may not reflect all available information such as changes in the level and quality of experience held by certain borrowers or limitations in data available for certain loan portfolios. Model imprecision considers known model limitations not yet fully reflected in the quantitative estimate. The determination of the appropriate qualitative adjustment is based on management's analysis of current and expected economic conditions and their impact to the portfolio, as well as a qualitative assessment of the lending environment, including underwriting standards. Management recognizes the sensitivity of various assumptions made in the quantitative modeling of expected losses and may adjust reserves depending upon the level of uncertainty that currently exists in one or more assumptions.
Considering the lack of historical company data related to any realized loan losses since our inception, we elected to estimate our allowance for credit losses by using a probability-weighted analytical model that considers the likelihood of default and loss-given-default for each individual loan. The analytical model incorporates a third-party licensed database with historical loan losses from 1998 to 2019 for over 100,000 commercial real estate loans. At the time of adoption of ASU No. 2016-13, in determining our initial allowance for credit losses estimate, we employed a third-party licensed macroeconomic forecast that largely reflected our views at the time and projected stable economic conditions over the reasonable projection period. Significant inputs to our estimate of the allowance for credit losses include loan specific factors such as DSCR, LTV, remaining loan term, property type and others. In certain instances, for loans with unique risk characteristics, we may instead elect to employ different methods to estimate loan losses that also conform to ASU 2016-13 and related guidance.
Upon adoption of ASU No. 2016-13 on January 1, 2020, based on the Company’s loan portfolio, pre-COVID-19 economic environment and management’s expectations for future economic and market conditions at the time, the Company recorded, as a cumulative-effective adjustment to the cumulative earnings in our consolidated statement of equity, an initial allowance for credit losses of approximately $18.5 million, or approximately $0.34 per common share. In addition, we recorded an incremental allowance for credit losses for the six months ended June 30, 2020 of approximately $67.5 million, or $1.23 per common share, resulting in a cumulative year-to-date CECL impact of $86.0 million or $1.56 per common share, largely reflecting the changed expectations for macroeconomic and commercial real estate market conditions as a result of the COVID-19 pandemic.
Changes in the Fair Value of Our Investments
We intend to hold our target investments for the long-term and, as such, they are carried at amortized cost on our condensed consolidated balance sheets. We evaluate our investments for impairment on a quarterly basis and impairments are recognized when it is probable that we will not be able to collect all amounts estimated to be collected at the time of origination of the investment. We evaluate impairment (both interest and principal) based on the present value of expected future cash flows, discounted at the investment’s effective interest rate or the fair value of the collateral, less estimated costs to sell.
Although we intend to hold our target investments for the long-term, we may occasionally classify some of our investments as AFS. Investments classified as AFS are carried at their fair value, with changes in fair value recorded through accumulated other comprehensive income, a component of stockholders’ equity, rather than through earnings. We do not intend to hold any of our investments for trading purposes.
Changes in Market Interest Rates
Although our strategy is to primarily originate, invest in and manage senior floating-rate commercial mortgage loans, from time-to-time we may acquire fixed-rate investments, which exposes our operating results to the risks posed by fluctuations in interest rates. To the extent that this applies to us, we may choose to actively manage this risk through the use of our Manager’s sophisticated hedging strategies.
Summary of Results of Operations and Financial Condition
Our U.S. GAAP net incomeloss attributable to common stockholders was $17.4$1.8 million and $52.5$39.0 million ($0.320.03 and $1.00$0.71 per diluted weighted average share, respectively) for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, as compared to U.S. GAAP net income attributable to common stockholders of $16.5$18.2 million and $46.3$35.1 million ($0.370.33 and $1.04$0.68 per diluted weighted average share, respectively) for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively. The GAAP net loss for the three and six months ended June 30, 2020 was largely a result of an increase in the provision for credit losses recognized in accordance with the new credit loss accounting standard adopted on January 1, 2020. The increase in the provision for credit losses was magnified by the significant deterioration in macroeconomic forecasts during the first and second quarter of 2020, due to the economic dislocation caused by the COVID-19 pandemic. The GAAP net loss for the three and six months ended June 30, 2020 was also a result of realized losses on sales of loans held-for-sale.
The following tables presenttable presents the components of our comprehensive (loss) income for the three and ninesix months endedSeptember June 30, 20192020 and 2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except share data) | | Three Months Ended | | | | Six Months Ended | | | | |
| Income Statement Data: | | June 30, | | | | June 30, | | | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | |
| Interest income: | | (unaudited) | | | | | | | | |
| Loans held-for-investment | | $ | 60,299 | | | $ | 58,133 | | | $ | 123,558 | | | $ | 114,798 | | | |
| Loans held-for-sale | | 121 | | | — | | | 121 | | | — | | | |
| Available-for-sale securities | | 247 | | | 311 | | | 527 | | | 619 | | | |
| Held-to-maturity securities | | 236 | | | 613 | | | 546 | | | 1,274 | | | |
| Cash and cash equivalents | | 41 | | | 907 | | | 367 | | | 1,418 | | | |
| Total interest income | | 60,944 | | | 59,964 | | | 125,119 | | | 118,109 | | | |
| Interest expense: | | | | | | | | | | |
| Repurchase agreements | | 14,276 | | | 13,529 | | | 33,951 | | | 30,518 | | | |
| Securitized debt obligations | | 6,502 | | | 13,554 | | | 15,936 | | | 23,413 | | | |
| Convertible senior notes | | 4,525 | | | 4,491 | | | 9,041 | | | 8,956 | | | |
| Asset-specific financings | | 939 | | | 598 | | | 2,061 | | | 598 | | | |
| Revolving credit facilities | | 320 | | | 165 | | | 562 | | | 860 | | | |
| | | | | | | | | | |
| Total interest expense | | 26,562 | | | 32,337 | | | 61,551 | | | 64,345 | | | |
| Net interest income | | 34,382 | | | 27,627 | | | 63,568 | | | 53,764 | | | |
| | | | | | | | | | |
| Other (loss) income: | | | | | | | | | | |
| Provision for credit losses | | (14,205) | | | — | | | (67,541) | | | — | | | |
| Realized losses on sales | | (6,894) | | | — | | | (6,894) | | | — | | | |
| Fee income | | — | | | 202 | | | 522 | | | 1,115 | | | |
| | | | | | | | | | |
| Total other (loss) income | | (21,099) | | | 202 | | | (73,913) | | | 1,115 | | | |
| Expenses: | | | | | | | | | | |
| Management fees | | 3,959 | | | 3,763 | | | 7,866 | | | 7,212 | | | |
| Incentive fees | | — | | | — | | | — | | | 244 | | | |
| Servicing expenses | | 1,002 | | | 885 | | | 2,111 | | | 1,658 | | | |
| Other operating expenses | | 10,060 | | | 5,006 | | | 18,613 | | | 10,622 | | | |
| Total expenses | | 15,021 | | | 9,654 | | | 28,590 | | | 19,736 | | | |
| (Loss) income before income taxes | | (1,738) | | | 18,175 | | | (38,935) | | | 35,143 | | | |
| Benefit from income taxes | | (5) | | | (2) | | | (11) | | | (3) | | | |
| Net (loss) income | | (1,733) | | | 18,177 | | | (38,924) | | | 35,146 | | | |
| Dividends on preferred stock | | 25 | | | 25 | | | 50 | | | 50 | | | |
| Net (loss) income attributable to common stockholders | | $ | (1,758) | | | $ | 18,152 | | | $ | (38,974) | | | $ | 35,096 | | | |
| Basic (loss) earnings per weighted average common share | | $ | (0.03) | | | $ | 0.34 | | | $ | (0.71) | | | $ | 0.68 | | | |
| Diluted (loss) earnings per weighted average common share | | $ | (0.03) | | | $ | 0.33 | | | $ | (0.71) | | | $ | 0.68 | | | |
| Dividends declared per common share | | $ | — | | | $ | 0.42 | | | $ | — | | | $ | 0.84 | | | |
| Weighted average number of shares of common stock outstanding: | | | | | | | | | | |
| Basic | | 55,158,283 | | | 53,953,634 | | | 55,107,347 | | | 51,292,318 | | | |
| Diluted | | 55,158,283 | | | 67,624,395 | | | 55,107,347 | | | 51,292,318 | | | |
| Comprehensive income (loss): | | | | | | | | | | |
| Net (loss) income attributable to common stockholders | | $ | (1,758) | | | $ | 18,152 | | | $ | (38,974) | | | $ | 35,096 | | | |
| Other comprehensive income (loss), net of tax: | | | | | | | | | | |
| Unrealized gain (loss) on available-for-sale securities | | 3,712 | | | 32 | | | (32) | | | 224 | | | |
| Other comprehensive income (loss) | | 3,712 | | | 32 | | | (32) | | | 224 | | | |
| Comprehensive income (loss) | | $ | 1,954 | | | $ | 18,184 | | | $ | (39,006) | | | $ | 35,320 | | | |
32
|
| | | | | | | | | | | | | | | | |
| (in thousands, except share data) | | Three Months Ended | | Nine Months Ended |
| Income Statement Data: | | September 30, | | September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| Interest income: | | (unaudited) | | (unaudited) |
| Loans held-for-investment | | $ | 61,796 |
| | $ | 46,424 |
| | $ | 176,594 |
| | $ | 127,576 |
|
| Available-for-sale securities | | 308 |
| | 294 |
| | 927 |
| | 851 |
|
| Held-to-maturity securities | | 530 |
| | 757 |
| | 1,804 |
| | 2,478 |
|
| Cash and cash equivalents | | 810 |
| | 85 |
| | 2,228 |
| | 141 |
|
| Total interest income | | 63,444 |
| | 47,560 |
| | 181,553 |
| | 131,046 |
|
| Interest expense: | | | | | | | | |
| Repurchase agreements | | 17,951 |
| | 14,304 |
| | 48,469 |
| | 45,432 |
|
| Securitized debt obligations | | 12,467 |
| | 6,693 |
| | 35,880 |
| | 10,568 |
|
| Convertible senior notes | | 4,503 |
| | 2,216 |
| | 13,459 |
| | 6,601 |
|
| Asset-specific financings | | 1,119 |
| | — |
| | 1,717 |
| | — |
|
| Revolving credit facilities | | 322 |
| | 152 |
| | 1,182 |
| | 372 |
|
| Total interest expense | | 36,362 |
| | 23,365 |
| | 100,707 |
| | 62,973 |
|
| Net interest income | | 27,082 |
| | 24,195 |
| | 80,846 |
| | 68,073 |
|
| Other income: | | | | | | | | |
| Fee income | | — |
| | — |
| | 1,115 |
| | 1,446 |
|
| Total other income | | — |
| | — |
| | 1,115 |
| | 1,446 |
|
| Expenses: | | | | | | | | |
| Management fees | | 3,801 |
| | 3,111 |
| | 11,013 |
| | 9,434 |
|
| Incentive fees | | — |
| | — |
| | 244 |
| | — |
|
| Servicing expense | | 1,013 |
| | 616 |
| | 2,671 |
| | 1,568 |
|
| Other operating expenses | | 4,877 |
| | 3,904 |
| | 15,499 |
| | 12,141 |
|
| Total expenses | | 9,691 |
| | 7,631 |
| | 29,427 |
| | 23,143 |
|
| Income before income taxes | | 17,391 |
| | 16,564 |
| | 52,534 |
| | 46,376 |
|
| (Benefit from) provision for income taxes | | (1 | ) | | (1 | ) | | (4 | ) | | (2 | ) |
| Net income | | 17,392 |
| | 16,565 |
| | 52,538 |
| | 46,378 |
|
| Dividends on preferred stock | | 25 |
| | 25 |
| | 75 |
| | 75 |
|
| Net income attributable to common stockholders | | $ | 17,367 |
| | $ | 16,540 |
| | $ | 52,463 |
| | $ | 46,303 |
|
| Basic earnings per weighted average common share | | $ | 0.32 |
| | $ | 0.38 |
| | $ | 1.00 |
| | $ | 1.07 |
|
| Diluted earnings per weighted average common share | | $ | 0.32 |
| | $ | 0.37 |
| | $ | 1.00 |
| | $ | 1.04 |
|
| Dividends declared per common share | | $ | 0.42 |
| | $ | 0.42 |
| | $ | 1.26 |
| | $ | 1.20 |
|
| Weighted average number of shares of common stock outstanding: | | | | �� | | | | |
| Basic | | 54,853,205 |
| | 43,456,234 |
| | 52,492,324 |
| | 43,426,109 |
|
| Diluted | | 54,853,205 |
| | 50,651,612 |
| | 52,492,324 |
| | 50,616,264 |
|
| | | | | | | | | |
| Comprehensive income: | | | | | | | | |
| Net income attributable to common stockholders | | $ | 17,367 |
| | $ | 16,540 |
| | $ | 52,463 |
| | $ | 46,303 |
|
| Other comprehensive income, net of tax: | | | | | | | | |
| Unrealized gain on available-for-sale securities | | — |
| | 32 |
| | 224 |
| | 32 |
|
| Other comprehensive income | | — |
| | 32 |
| | 224 |
| | 32 |
|
| Comprehensive income attributable to common stockholders | | $ | 17,367 |
| | $ | 16,572 |
| | $ | 52,687 |
| | $ | 46,335 |
|
| | | | | | | | | | | | | | |
| (in thousands) | | June 30,
2020 | | December 31,
2019 |
| Balance Sheet Data: | | | | |
| | | | |
| Loans held-for-investment | | $ | 4,290,047 | | | $ | 4,226,212 | |
| Total assets | | $ | 4,415,648 | | | $ | 4,460,862 | |
| Repurchase agreements | | $ | 2,030,916 | | | $ | 1,924,021 | |
| Securitized debt obligations | | $ | 983,521 | | | $ | 1,041,044 | |
| Asset-specific financings | | $ | 121,242 | | | $ | 116,465 | |
| Revolving credit facilities | | $ | 12,589 | | | $ | 42,008 | |
| Convertible senior notes | | $ | 270,437 | | | $ | 269,634 | |
| Total stockholders’ equity | | $ | 964,336 | | | $ | 1,019,136 | |
|
| | | | | | | | |
| (in thousands) | | September 30,
2019 | | December 31,
2018 |
| Balance Sheet Data: | | |
| | | (unaudited) | | |
| Loans held-for-investment | | $ | 3,927,095 |
| | $ | 3,167,913 |
|
| Total assets | | $ | 4,307,612 |
| | $ | 3,361,881 |
|
| Repurchase agreements | | $ | 1,724,912 |
| | $ | 1,500,543 |
|
| Securitized debt obligations | | $ | 1,124,820 |
| | $ | 654,263 |
|
| Asset-specific financings | | $ | 114,080 |
| | $ | — |
|
| Revolving credit facilities | | $ | — |
| | $ | 75,000 |
|
| Convertible senior notes | | $ | 269,241 |
| | $ | 268,138 |
|
| Total stockholders’ equity | | $ | 1,023,240 |
| | $ | 827,531 |
|
Results of Operations
The following analysis focuses on our financial results during the three and ninesix months endedSeptember June 30, 20192020 and 2018.2019.
Interest Income
Interest income increased from $47.6$60.0 million and $131.0$118.1 million respectively, for the three and ninesix months ended SeptemberJune 30, 20182019, respectively, to $63.4$60.9 million and $181.6$125.1 million respectively, for the same periods in 2019,2020, respectively, due to the origination of 5230 commercial real estate loansdebt and related investments with a principal balance of $1.5$1.1 billion, additional fundings of $192.8$277.5 million provided on existing loan commitments and upsizings of $10.6$2.2 million, offset by repayments of $503.3$582.5 million as well as a significant decline in short-term interest rates during the period from SeptemberJune 30, 20182019 to SeptemberJune 30, 2019.2020.
Interest Expense
Interest expense increaseddecreased from $23.4$32.3 million and $63.0$64.3 million respectively, for the three and ninesix months ended SeptemberJune 30, 20182019, respectively, to $36.4$26.6 million and $100.7$61.6 million respectively, for the same periods in 2019,2020, respectively, primarily due to a significant decline in short-term interest rates, offset by increased financing on the originations and acquisitionsadditional fundings described above and the issuance of additional convertible senior notes in October 2018.
Net Interest Income
The following table presentstables present the components of interest income and average annualized net asset yield earned by asset type, the components of interest expense and average annualized cost of funds on borrowings incurred by collateral type and net interest income and average annualized net interest rate spread for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | | | Six Months Ended June 30, 2020 | | | | | | | | | | |
| (dollars in thousands) | Average Balance | | Interest Income/Expense (1) | | Net Yield/Cost of Funds | | Average Balance | | Interest Income/Expense (1) | | Net Yield/Cost of Funds | | | | | | |
Interest-earning assets (2) | | | | | | | | | | | | | | | | | |
| Loans held-for-investment/held-for-sale | | | | | | | | | | | | | | | | | |
Senior loans (3) | $ | 4,321,988 | | | $ | 59,764 | | | 5.5 | % | | $ | 4,294,981 | | | $ | 122,313 | | | 5.7 | % | | | | | | |
| Subordinated loans | 27,377 | | | 656 | | | 9.6 | % | | 27,558 | | | 1,366 | | | 9.9 | % | | | | | | |
| Available-for-sale securities | 12,798 | | | 247 | | | 7.7 | % | | 12,798 | | | 527 | | | 8.2 | % | | | | | | |
| Held-to-maturity securities | 11,751 | | | 236 | | | 8.0 | % | | 12,712 | | | 546 | | | 8.6 | % | | | | | | |
| Other | | | 41 | | | | | | | 367 | | | | | | | | | |
| Total interest income/net asset yield | $ | 4,373,914 | | | $ | 60,944 | | | 5.6 | % | | $ | 4,348,049 | | | $ | 125,119 | | | 5.8 | % | | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | | | | | | |
| Borrowings collateralized by: | | | | | | | | | | | | | | | | | |
| Loans held-for-investment/held-for sale | | | | | | | | | | | | | | | | | |
Senior loans (3) | $ | 3,150,219 | | | $ | 21,809 | | | 2.8 | % | | $ | 3,137,804 | | | $ | 52,000 | | | 3.3 | % | | | | | | |
| Subordinated loans | 8,632 | | | 76 | | | 3.5 | % | | 9,001 | | | 183 | | | 4.1 | % | | | | | | |
| Available-for-sale securities | 7,633 | | | 79 | | | 4.2 | % | | 7,999 | | | 155 | | | 3.9 | % | | | | | | |
| Held-to-maturity securities | 6,506 | | | 73 | | | 4.5 | % | | 8,031 | | | 172 | | | 4.3 | % | | | | | | |
| Other unsecured: | | | | | | | | | | | | | | | | | |
| Convertible senior notes | 270,301 | | | 4,525 | | | 6.7 | % | | 270,100 | | | 9,041 | | | 6.7 | % | | | | | | |
| Total interest expense/cost of funds | $ | 3,443,291 | | | 26,562 | | | 3.1 | % | | $ | 3,432,935 | | | 61,551 | | | 3.6 | % | | | | | | |
| Net interest income/spread | | | $ | 34,382 | | | 2.5 | % | | | | $ | 63,568 | | | 2.2 | % | | | | | | |
33
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
| (dollars in thousands) | Average Balance | | Interest Income/Expense (1) | | Net Yield/Cost of Funds | | Average Balance | | Interest Income/Expense (1) | | Net Yield/Cost of Funds |
Interest-earning assets (2) | | | | | | | | | | | |
| Loans held-for-investment | | | | | | | | | | |
|
|
Senior loans (3) | $ | 3,733,792 |
| | $ | 61,074 |
| | 6.5 | % | | $ | 3,397,816 |
| | $ | 174,226 |
| | 6.8 | % |
| Subordinated loans | 28,433 |
| | 722 |
| | 10.2 | % | | 30,981 |
| | 2,368 |
| | 10.2 | % |
| Available-for-sale securities | 12,798 |
| | 308 |
| | 9.6 | % | | 12,798 |
| | 927 |
| | 9.7 | % |
| Held-to-maturity securities | 21,323 |
| | 530 |
| | 9.9 | % | | 24,088 |
| | 1,804 |
| | 10.0 | % |
| Other | | | 810 |
| | | | | | 2,228 |
| |
|
|
| Total interest income/net asset yield | $ | 3,796,346 |
| | $ | 63,444 |
| | 6.7 | % | | $ | 3,465,683 |
| | $ | 181,553 |
| | 7.0 | % |
| Interest-bearing liabilities | | | | | | | | | | | |
| Repurchase agreements, securitized debt obligations, asset-specific financings and revolving credit facilities collateralized by: | | | | | | | | | | | |
| Loans held-for-investment | | | | | | | | | | |
|
|
Senior loans (2) | $ | 2,713,782 |
| | $ | 31,459 |
| | 4.6 | % | | $ | 2,367,468 |
| | $ | 85,985 |
| | 4.8 | % |
| Subordinated loans | 9,451 |
| | 127 |
| | 5.4 | % | | 9,485 |
| | 388 |
| | 5.5 | % |
| Available-for-sale securities | 8,451 |
| | 94 |
| | 4.5 | % | | 8,435 |
| | 285 |
| | 4.5 | % |
| Held-to-maturity securities | 14,357 |
| | 179 |
| | 5.0 | % | | 15,642 |
| | 590 |
| | 5.0 | % |
| Other unsecured: | | | | |
|
| | | | | |
|
|
| Convertible senior notes | 269,111 |
| | 4,503 |
| | 6.7 | % | | 268,737 |
| | 13,459 |
| | 6.7 | % |
| Total interest expense/cost of funds | $ | 3,015,152 |
| | 36,362 |
| | 4.8 | % | | $ | 2,669,767 |
| | 100,707 |
| | 5.0 | % |
| Net interest income/spread | | | $ | 27,082 |
| | 1.9 | % | | | | $ | 80,846 |
| | 2.0 | % |
| | | | Three Months Ended September 30, 2018 | | Nine Months Ended September 30, 2018 | | Three Months Ended June 30, 2019 | | | Six Months Ended June 30, 2019 | |
| (dollars in thousands) | Average Balance | | Interest Income/Expense (1) | | Net Yield/Cost of Funds | | Average Balance | | Interest Income/Expense (1) | | Net Yield/Cost of Funds | (dollars in thousands) | Average Balance | | Interest Income/Expense (1) | | Net Yield/Cost of Funds | | Average Balance | | Interest Income/Expense (1) | | Net Yield/Cost of Funds |
Interest-earning assets (2) | | | | | | | | | | | | Interest-earning assets (2) | | | | | | | | | | | |
| Loans held-for-investment | | | | | | | | | | | | Loans held-for-investment | |
Senior loans (3) | $ | 2,578,633 |
| | $ | 45,215 |
| | 7.0 | % | | $ | 2,435,521 |
| | $ | 122,872 |
| | 6.7 | % | Senior loans (3) | $ | 3,296,237 | | | $ | 57,409 | | | 7.0 | % | | $ | 3,229,828 | | | $ | 113,152 | | | 7.0 | % |
| Subordinated loans | 46,800 |
| | 1,209 |
| | 10.3 | % | | 61,245 |
| | 4,705 |
| | 10.2 | % | Subordinated loans | 28,774 | | | 724 | | | 10.1 | % | | 32,254 | | | 1,646 | | | 10.2 | % |
| Available-for-sale securities | 12,798 |
| | 294 |
| | 9.2 | % | | 12,798 |
| | 851 |
| | 8.9 | % | Available-for-sale securities | 12,798 | | | 311 | | | 9.7 | % | | 12,798 | | | 619 | | | 9.7 | % |
| Held-to-maturity securities | 31,724 |
| | 757 |
| | 9.5 | % | | 35,956 |
| | 2,478 |
| | 9.2 | % | Held-to-maturity securities | 24,411 | | | 613 | | | 10.0 | % | | 25,470 | | | 1,274 | | | 10.0 | % |
| Other | | | 85 |
| | | | | | 141 |
| |
|
| Other | | 907 | | | | | 1,418 | | | |
| Total interest income/net asset yield | $ | 2,669,955 |
| | $ | 47,560 |
| | 7.1 | % | | $ | 2,545,520 |
| | $ | 131,047 |
| | 6.9 | % | Total interest income/net asset yield | $ | 3,362,220 | | | $ | 59,964 | | | 7.1 | % | | $ | 3,300,350 | | | $ | 118,109 | | | 7.2 | % |
| Interest-bearing liabilities | | | | | | | | | | | | Interest-bearing liabilities | | | | |
| Repurchase agreements, securitized debt obligations, asset-specific financings and revolving credit facilities collateralized by: | | | | | | | | | | | | |
| Borrowings collateralized by: | | Borrowings collateralized by: | | | | |
| Loans held-for-investment | | | | | | | | | | | | Loans held-for-investment | | | | |
Senior loans (2) | $ | 1,774,037 |
| | $ | 20,679 |
| | 4.7 | % | | $ | 1,598,294 |
| | $ | 54,875 |
| | 4.6 | % | |
Senior loans (3) | | Senior loans (3) | $ | 2,247,242 | | | $ | 27,410 | | | 4.9 | % | | $ | 2,194,311 | | | $ | 54,525 | | | 5.0 | % |
| Subordinated loans | 9,581 |
| | 125 |
| | 5.2 | % | | 13,253 |
| | 452 |
| | 4.5 | % | Subordinated loans | 9,485 | | | 131 | | | 5.5 | % | | 9,502 | | | 262 | | | 5.5 | % |
| Available-for-sale securities | 8,388 |
| | 91 |
| | 4.3 | % | | 8,411 |
| | 254 |
| | 4.0 | % | Available-for-sale securities | 8,478 | | | 99 | | | 4.7 | % | | 8,428 | | | 191 | | | 4.5 | % |
| Held-to-maturity securities | 20,988 |
| | 255 |
| | 4.9 | % | | 23,410 |
| | 791 |
| | 4.5 | % | Held-to-maturity securities | 15,938 | | | 206 | | | 5.2 | % | | 16,284 | | | 411 | | | 5.0 | % |
| Other unsecured: | | | | | | | | | | |
|
| Other unsecured: | | | | |
| Convertible senior notes | 140,059 |
| | 2,215 |
| | 6.3 | % | | 139,868 |
| | 6,601 |
| | 6.3 | % | Convertible senior notes | 268,730 | | | 4,491 | | | 6.7 | % | | 268,550 | | | 8,956 | | | 6.7 | % |
| Total interest expense/cost of funds | $ | 1,953,053 |
| | 23,365 |
| | 4.7 | % | | $ | 1,783,236 |
| | 62,973 |
| | 4.7 | % | Total interest expense/cost of funds | $ | 2,549,873 | | | 32,337 | | | 5.1 | % | | $ | 2,497,075 | | | 64,345 | | | 5.2 | % |
| Net interest income/spread | | | $ | 24,195 |
| | 2.4 | % | | | | $ | 68,074 |
| | 2.2 | % | Net interest income/spread | | $ | 27,627 | | | 2.0 | % | | | $ | 53,764 | | | 2.0 | % |
____________________
| |
(1) | Includes amortization of deferred debt issuance costs. |
| |
(2) | Average balance represents average amortized cost on loans held-for-investment, AFS securities and HTM securities. |
| |
(3) | 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. |
(1)Includes amortization of deferred debt issuance costs.
(2)Average balance represents average amortized cost on loans held-for-investment/held-for-sale, AFS securities and HTM securities.
(3)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.
The majority of our interest-earning assets and liabilities have floating rates based on an index (e.g., 1-month U.S. LIBOR) plus a credit spread. As a result, our asset yields and cost of funds are impacted by changes in market interest rates and credit spreads on investments, as well as changes in the mix of our investment portfolio credit spreads due to new originations, amendments of existing investments, additional fundings, upsizings and repayments.
The overall decrease in yields on senior loansour investment portfolio for the three and six months ended SeptemberJune 30, 2019,2020, as compared to the same periodperiods in 2018,2019, was primarily driven by a decreasesignificant decline in average LIBOR throughout the periodsshort-term interest rates and the repaymentrepayments of loans with higher spreads than those originated duringin 2019. The increase in yields on senior loans for the nine months ended September 30, 2019, as compared to the same period in 2018, was driven by an increase in average LIBOR throughout the periods. Theoverall decrease in cost of funds on senior loans for the three months ended September 30, 2019, as compared to the same period in 2018, was primarily the result of lower amortization of deferred debt issuance costs due to extensions of maturities on our financing arrangements. The increase in cost of funds on senior loans for the nine months ended September 30, 2019, as compared to the same period in 2018, was driven by an increase in average LIBOR throughout the periods.
The decrease in yields on subordinate loans for the three months ended September 30, 2019, as compared to the same period in 2018, was due to the repayment of loans with higher spreads. There was no change in yields on subordinate loans for the nine months ended September 30, 2019, as compared to the same period in 2018. The increase in cost of funds on subordinate loanssecured borrowings for the three and ninesix months ended SeptemberJune 30, 2019,2020, as compared to the same periods in 2018,2019, was primarily driven by increasesthe decline in borrowing rates offered by counterparties.
The increase in yields on AFS and HTM securities for the three and nine months ended September 30, 2019, as compared to the same periods in 2018, was driven by an increase in average LIBOR throughout the periods, as these CMBS are floating-rate assets with a 3-month reset. The increase in cost of funds associated with the financing of AFS and HTM securities for the three and nine months ended September 30, 2019, as compared to the same periods in 2018, was the result of increases in borrowing rates due to an increase in average LIBOR throughout the periods.short-term interest rates.
Our convertible senior notes were issued in December 2017due 2022 and October 2018,2023 are unsecured and pay interest semiannually at a rate of 5.625% and 6.375%, respectively, per annum. The cost of funds associated with our convertible senior notes also includes amortization of deferred debt issuance costs.
Subsequent to the adoption of ASU 2016-13 on January 1, 2020, we use a probability-weighted analytical model to estimate and recognize an allowance for credit losses on loans held-for-investment and their related unfunded commitments. Additionally, in determining the allowance for credit losses estimate through June 30, 2020, we employed a third-party licensed macroeconomic forecast, over the reasonable projection period, that includes the impact of the COVID-19 pandemic on the overall economy and commercial real estate markets generally and is not specific to any loan losses or impairments in our portfolio. Significant inputs to our estimate of the allowance for credit losses include loan specific factors such as DSCR, LTV, remaining loan term, property type and others. In certain instances, for loans with unique risk characteristics, we may instead elect to employ different methods to estimate loan losses that also conform to ASU 2016-13 and related guidance.
| | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | | | Six Months Ended
June 30, | | | | |
| (in thousands) | 2020 | | | | 2020 | | | | |
| Provision for credit losses on: | | | | | | | | | |
| Loans held-for-investment | $ | (14,145) | | | | | $ | (60,018) | | | | | |
| Available-for-sale securities | 511 | | | | | (256) | | | | | |
| Held-to-maturity securities | 4 | | | | | (938) | | | | | |
| Other liabilities | (575) | | | | | (6,329) | | | | | |
| Total provision for credit losses | $ | (14,205) | | | | | $ | (67,541) | | | | | |
For the three months ended June 30, 2020, our estimate of expected credit losses further increased primarily due to the continued sharply recessionary macroeconomic forecast employed in our loss estimation model stemming from the ongoing impact of the COVID-19 pandemic.
Realized Losses on Sales
During both the three and six months ended June 30, 2020, we sold loans for $12.8 million with an amortized cost of $19.7 million for realized losses of $6.9 million. We did not sell any loans during the three and six months ended June 30, 2019.
Fee Income
During the ninesix months ended SeptemberJune 30, 2019,2020, we recognized $1.1$0.5 million in fee income related to fees charged for early prepayments of loans held-for-investment, compared to $1.4$0.2 million forand $1.1 million, during the same period in 2018.three and six months ended June 30, 2019. No fee income was recognizedearned during the three months ended 2019June 30, 2020.
Expenses
The following table presents the components of expenses for the three and 2018.six months ended June 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| June 30, | | | | June 30, | | |
| (in thousands, except share data) | 2020 | | 2019 | | 2020 | | 2019 |
| Management fees | $ | 3,959 | | | $ | 3,763 | | | $ | 7,866 | | | $ | 7,212 | |
| Incentive fees | $ | — | | | $ | — | | | $ | — | | | $ | 244 | |
| Servicing expenses | $ | 1,002 | | | $ | 885 | | | $ | 2,111 | | | $ | 1,658 | |
| Other operating expenses: | | | | | | | |
Compensation paid to certain officers by our Manager and reimbursed by us (1) | $ | 275 | | | $ | 246 | | | $ | 1,981 | | | $ | 1,610 | |
| Other direct and allocated costs paid by our Manager and reimbursed by us | 1,264 | | | 1,450 | | | 7,319 | | | 6,643 | |
Amortization of executive officers’ restricted stock (2) | 833 | | | 815 | | | 1,626 | | | 1,560 | |
| All other operating expenses/changes in operating expense accruals | 7,688 | | | 2,495 | | | 7,687 | | | 809 | |
| Total other operating expenses | $ | 10,060 | | | $ | 5,006 | | | $ | 18,613 | | | $ | 10,622 | |
| Annualized other operating expense ratio | 4.2 | % | | 2.0 | % | | 3.8 | % | | 2.2 | % |
Management Fees____________________
(1)Officers include our principal financial officer, chief operating officer and general counsel. We do not reimburse our Manager for any expenses related to the compensation of our chief executive officer or chief investment officer.
(2)Equity based compensation expense related to the amortization of restricted stock awarded to our executive officers in conjunction with the Plan (see discussion in Note 15 - Equity Incentive Plan of the notes to the consolidated financial statements included in this Quarterly Report on Form 10-Q), including our chief executive officer, chief investment officer, chief operating officer, principal financial officer, secretary and general counsel.
We do not have any employees and are currently externally managed by our Manager under the terms of a management agreement entered into in connection with closing of the IPO and Formation Transaction on June 28, 2017.agreement. Under the management agreement, our Manager and its affiliates provide us with the personnel and resources necessary to operate our business. In accordance with the management agreement, we incurred $3.8 million and $11.0 million asbusiness in exchange for a management fee to our Manager for the three and, nine months ended September 30, 2019, respectively, and $3.1 million and $9.4 million as a management fee to our Manager for the three and nine months ended September 30, 2018, respectively.if applicable, an incentive fee. The management fee is calculated based on our equity with certain adjustments outlined in the management agreement. See further discussion of the base management fee calculation in Note 15 - Commitments and Contingencies of the notes to the condensed consolidated financial statements (unaudited).
Incentive Fees
In accordance with the management agreement, we also incurred $0.2 million as an incentive fee to our Manager for the nine months ended September 30, 2019. No incentive fees were incurred for the three months ended September 30, 2019 or for the three and nine months ended September 30, 2018. The incentive fee is calculated based on historical “core earnings” as well as our equity with certain adjustments outlined in the management agreement. See further discussion of the base management fee and incentive fee calculationcalculations in Note 1512 - Commitments and Contingencies of the notes to the condensed consolidated financial statements (unaudited).included in this Quarterly Report on Form 10-Q.
Servicing Expenses
In March 2020, we announced that we have agreed to a process with our Manager to internalize the Company’s management function. If the internalization is completed, the management agreement will be terminated and, therefore, we will no longer pay a management fee. For further discussion of the related arbitration, see “three and nine months endedLegal Proceedings” in Part II, Item 1 of this Quarterly Report on Form 10-Q. See “Business - Our Manager” September 30, 2019, we recognized $1.0 millionin Item 1 and $2.7 million, respectively,“Risks Relating to Our Relationship With Our Manager” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019.
We also incur servicing expenses related to the servicing of commercial real estate loans compared to $0.6 million and $1.6 million, respectively, for the same periods in 2018.other operating expenses. The increase in servicing expenses during the three and ninesix months ended September June 30, 2019,2020, as compared to the same periodperiods in 2018,2019, was driven by the growth of our investment portfolio, as described above.
Other Operating Expenses
For the three and nine months ended September 30, 2019, we recognized $4.9 million and $15.5 million, respectively, of other operating expenses, which represents an annualized other expense ratio of 1.9% and 2.1% of average equity, respectively. For the three and nine months ended September 30, 2018, we recognized $3.9 million and $12.1 million, respectively, of other operating expenses, which represents an annualized other expense ratio of 1.9% of average equity for both periods. The increase in our operating expense ratio during the three and ninesix months ended SeptemberJune 30, 2019,2020, as compared to the same periods in 2018,2019, resulted primarily from an increase in expenses related to the personnel and infrastructure to support the operation and growth of our business.
Included in other operating expenses for the three and nine months ended September 30, 2019 and 2018 are direct and allocated costs incurred by our Manager on our behalf and reimbursed by us. For the three and nine months ended September 30, 2019, these direct and allocated costs totaled approximately $1.7 million and $10.0 million, respectively, compared to $1.5 million and $6.7 million, respectively, for the same periods in 2018. Included in these reimbursed costs wasus, including compensation paid to employees of our Manager serving as our principal financial officer, chief operating officer and general counselcounsel. We reimburse our Manager for our allocable share of $0.2 million and $1.8 million for thethree and nine months ended September 30, 2019, respectively, compared to $0.1 million and $1.0 million for the same periods in 2018, respectively. The allocation of compensation paid to employees ofby our Manager to its personnel serving as our chief operating officer, principal financial officer and general counsel is based on time spent overseeing our company’s activities in accordance with the management agreement;counsel; we do not reimburse our Manager for any expenses related to the compensation of our chief executive officer or chief investment officer. Equity based compensation expense for the three and nine months ended September 30, 2019 also includes the amortization of the restricted stock awarded to our executive officers in conjunction with the Company’s 2017 Equity Incentive Plan, or the Plan (see discussion in Note 18 - Equity Incentive Plan), including our chief executive officer, chief investment officer, chief operating officer, principal financial officer and general counsel of $0.7 million and $2.3 million, respectively, compared to $0.7 million and $2.2 million, respectively, for the same periods in 2018.
Financial Condition
We originate and acquire 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 and origination costs as applicable. We also hold CMBS, representing interests in commercial mortgage and mezzanine loans issued by trusts.
The following tables provide a summary of our portfolio as of SeptemberJune 30, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | | | | | | | | | | | | | | | | |
| Type | | Maximum Loan Commitment | | Principal Balance | | Carrying Value | | Cash Coupon (2) | | All-in Yield at Origination(3) | | Original Term (Years) | | Initial LTV (4) | | Stabilized LTV (5) |
Senior loans (1) | | $ | 5,041,730 | | | $ | 4,364,056 | | | $ | 4,264,870 | | | L+3.51% | | L+4.19% | | 3.1 | | | 66.3 | % | | 63.8 | % |
| Subordinated loans | | 27,237 | | | 27,237 | | | 25,177 | | | L+9.50% | | L+9.84% | | 8.2 | | | 56.0 | % | | 49.8 | % |
| CMBS | | 24,524 | | | 24,524 | | | 23,330 | | | L+7.07% | | L+7.61% | | 2.8 | | | 71.4 | % | | 71.4 | % |
| Total/Wtd. Avg. | | $ | 5,093,491 | | | $ | 4,415,817 | | | $ | 4,313,377 | | | L+3.54% | | L+4.22% | | 3.2 | | | 66.3 | % | | 63.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | | | | | | | | | | | | | | | | | | | | | | |
Type (1) | | Origination/ Acquisition Date | | Maximum Loan Commitment | | Principal Balance | | Carrying Value | | Cash Coupon (2) | | All-in Yield at Origination (3) | | Original Term (Years) | | State | | Property Type | | Initial LTV (4) | | Stabilized LTV (5) |
| Senior | | 07/18 | | $126.9 | | $110.3 | | $107.7 | | L+3.34% | | L+4.27% | | 2.0 | | CA | | Retail | | 50.7% | | 55.9% |
| Senior | | 12/15 | | 120.1 | | 120.1 | | 117.5 | | L+3.65% | | L+4.43% | | 4.0 | | LA | | Mixed-Use | | 65.5% | | 60.0% |
| Senior | | 10/19 | | 120.0 | | 86.9 | | 84.8 | | L+3.24% | | L+3.86% | | 3.0 | | CA | | Office | | 63.9% | | 61.1% |
| Senior | | 12/19 | | 101.7 | | 82.3 | | 80.9 | | L+2.75% | | L+3.23% | | 3.0 | | IL | | Multifamily | | 76.5% | | 73.0% |
| Senior | | 08/19 | | 100.3 | | 78.5 | | 77.3 | | L+2.80% | | L+3.26% | | 3.0 | | MN | | Office | | 73.1% | | 71.2% |
| Senior | | 07/19 | | 94.0 | | 70.7 | | 69.0 | | L+3.69% | | L+4.32% | | 3.0 | | IL | | Office | | 70.0% | | 64.4% |
| Senior | | 06/19 | | 92.4 | | 69.4 | | 66.9 | | L+3.45% | | L+3.88% | | 3.0 | | TX | | Hotel | | 56.1% | | 48.1% |
| Senior | | 12/18 | | 92.0 | | 56.4 | | 55.5 | | L+3.75% | | L+5.21% | | 3.0 | | NY | | Mixed-Use | | 26.2% | | 47.6% |
| Senior | | 10/19 | | 87.8 | | 65.7 | | 64.2 | | L+2.55% | | L+3.05% | | 3.0 | | TN | | Office | | 70.2% | | 74.2% |
| Senior | | 05/17 | | 86.8 | | 82.6 | | 81.9 | | L+3.50% | | L+4.82% | | 4.0 | | MA | | Office | | 71.3% | | 71.5% |
| Senior | | 01/20 | | 81.9 | | 50.0 | | 49.0 | | L+3.25% | | L+3.93% | | 3.0 | | CO | | Industrial | | 47.2% | | 47.5% |
| Senior | | 06/19 | | 80.4 | | 79.9 | | 78.9 | | L+2.69% | | L+3.05% | | 3.0 | | TX | | Mixed-Use | | 71.7% | | 72.2% |
| Senior | | 09/19 | | 75.6 | | 68.4 | | 67.6 | | L+3.07% | | L+3.58% | | 3.0 | | NY | | Multifamily | | 62.7% | | 67.1% |
| Senior | | 10/19 | | 75.1 | | 75.1 | | 70.9 | | L+3.36% | | L+3.73% | | 3.0 | | FL | | Mixed-Use | | 67.7% | | 62.9% |
| Senior | | 10/17 | | 74.8 | | 51.1 | | 49.7 | | L+4.07% | | L+4.47% | | 4.0 | | DC | | Office | | 67.0% | | 66.0% |
| Senior | | 11/17 | | 73.3 | | 68.8 | | 64.7 | | L+4.45% | | L+5.20% | | 3.0 | | TX | | Hotel | | 68.2% | | 61.6% |
| Senior | | 12/16 | | 71.8 | | 68.0 | | 67.1 | | L+3.75% | | L+4.87% | | 4.0 | | FL | | Office | | 73.3% | | 63.2% |
| Senior | | 06/16 | | 68.4 | | 62.6 | | 62.2 | | L+3.87% | | L+4.93% | | 4.0 | | HI | | Retail | | 76.2% | | 57.4% |
| Senior | | 11/17 | | 68.3 | | 64.4 | | 63.9 | | L+4.10% | | L+4.73% | | 3.0 | | CA | | Office | | 66.8% | | 67.0% |
| Senior | | 12/19 | | 65.2 | | 50.2 | | 49.4 | | L+2.80% | | L+3.28% | | 3.0 | | NY | | Office | | 68.8% | | 59.3% |
| Senior | | 01/19 | | 65.1 | | 65.1 | | 60.4 | | L+3.85% | | L+4.38% | | 3.0 | | MN | | Hotel | | 67.2% | | 64.5% |
| Senior | | 04/18 | | 64.0 | | 64.0 | | 60.6 | | L+3.78% | | L+4.23% | | 3.0 | | GA | | Hotel | | 68.8% | | 59.8% |
| Senior | | 09/19 | | 60.2 | | 55.9 | | 55.4 | | L+3.00% | | L+3.63% | | 2.0 | | TX | | Office | | 64.7% | | 59.0% |
| Senior | | 12/18 | | 60.1 | | 51.8 | | 51.3 | | L+2.90% | | L+3.44% | | 3.0 | | TX | | Office | | 68.5% | | 66.7% |
| Senior | | 01/17 | | 58.6 | | 47.3 | | 46.9 | | L+4.50% | | L+5.16% | | 3.0 | | CA | | Industrial | | 51.0% | | 60.4% |
| Senior | | 01/17 | | 56.0 | | 56.0 | | 55.7 | | L+4.75% | | L+5.24% | | 4.0 | | SC | | Office | | 67.6% | | 67.1% |
| Senior | | 06/19 | | 55.0 | | 50.0 | | 48.8 | | L+3.10% | | L+3.67% | | 3.0 | | AL | | Multifamily | | 69.5% | | 74.0% |
| Senior | | 12/15 | | 54.5 | | 54.5 | | 54.0 | | L+3.73% | | L+4.87% | | 4.0 | | PA | | Office | | 74.5% | | 67.5% |
| Senior | | 06/19 | | 54.1 | | 48.8 | | 48.3 | | L+3.30% | | L+3.70% | | 3.0 | | VA | | Office | | 49.3% | | 49.9% |
| Senior | | 12/19 | | 52.3 | | 42.6 | | 41.9 | | L+3.61% | | L+4.20% | | 3.0 | | NY | | Industrial | | 76.8% | | 72.4% |
| Senior | | 10/18 | | 52.2 | | 50.6 | | 50.1 | | L+2.70% | | L+3.10% | | 3.0 | | NJ | | Industrial | | 73.9% | | 68.8% |
| Senior | | 05/17 | | 52.0 | | 52.0 | | 50.5 | | L+4.70% | | L+5.50% | | 3.0 | | HI | | Hotel | | 60.8% | | 59.4% |
| Senior | | 12/18 | | 51.0 | | 51.0 | | 50.2 | | L+2.99% | | L+3.40% | | 3.0 | | IL | | Multifamily | | 78.6% | | 74.9% |
| Senior | | 02/20 | | 50.2 | | 42.5 | | 40.4 | | L+3.30% | | L+3.75% | | 3.0 | | TN | | Hotel | | 69.1% | | 54.2% |
| Senior | | 09/18 | | 50.1 | | 21.5 | | 21.3 | | L+3.25% | | L+4.13% | | 3.0 | | IL | | Office | | 47.9% | | 56.1% |
| Senior | | 08/17 | | 50.0 | | 49.8 | | 49.4 | | L+3.09% | | L+4.88% | | 3.0 | | LA | | Multifamily | | 64.6% | | 60.9% |
| Senior | | 05/18 | | 50.0 | | 50.0 | | 49.3 | | L+3.60% | | L+3.85% | | 3.0 | | TX | | Multifamily | | 71.1% | | 71.4% |
| Senior | | 10/18 | | 49.1 | | 42.3 | | 41.4 | | L+4.15% | | L+5.24% | | 3.0 | | IL | | Multifamily | | 60.7% | | 62.4% |
| Senior | | 12/18 | | 49.0 | | 44.2 | | 43.9 | | L+2.93% | | L+3.39% | | 3.0 | | NY | | Industrial | | 56.5% | | 56.3% |
| Senior | | 12/17 | | 47.0 | | 40.6 | | 39.9 | | L+4.38% | | L+5.26% | | 3.0 | | MA | | Mixed-Use | | 72.9% | | 62.0% |
| Senior | | 05/18 | | 46.5 | | 32.0 | | 31.7 | | L+4.07% | | L+4.63% | | 3.0 | | NY | | Mixed-Use | | 57.0% | | 51.1% |
| Senior | | 08/19 | | 46.4 | | 40.4 | | 39.4 | | L+2.84% | | L+3.39% | | 3.0 | | GA | | Office | | 69.5% | | 68.3% |
| Senior | | 07/16 | | 46.0 | | 36.2 | | 36.0 | | L+2.93% | | L+4.99% | | 4.0 | | VA | | Office | | 62.8% | | 61.5% |
| Senior | | 06/18 | | 46.0 | | 46.0 | | 44.2 | | L+3.60% | | L+4.06% | | 3.0 | | WY | | Hotel | | 67.4% | | 62.3% |
37
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | | | | | | | | | | | | | | |
| Type | | Maximum Loan Commitment | | Principal Balance | | Carrying Value | | Cash Coupon (2) | | All-in Yield at Origination(3) | | Original Term (Years) | | Initial LTV (4) | | Stabilized LTV (5) |
Senior loans (1) | | $ | 4,594,472 |
| | $ | 3,927,513 |
| | $ | 3,898,788 |
| | L+3.67% | | L+4.36% | | 3.2 |
| | 66.1 | % | | 63.7 | % |
| Subordinated loans | | 28,307 |
| | 28,307 |
| | 28,307 |
| | L+9.50% | | L+9.84% | | 8.3 |
| | 56.3 | % | | 50.0 | % |
| CMBS | | 32,392 |
| | 32,392 |
| | 32,424 |
| | L+7.12% | | L+7.62% | | 2.8 |
| | 72.9 | % | | 72.9 | % |
| Total/Wtd. Avg. | | $ | 4,655,171 |
| | $ | 3,988,212 |
| | $ | 3,959,519 |
| | L+3.71% | | L+4.40% | | 3.2 |
| | 66.1 | % | | 63.7 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | | | | | | | | | | | | | | | | | | | | |
Type (1) | | Origination/ Acquisition Date | | Maximum Loan Commitment | | Principal Balance | | Carrying Value | | Cash Coupon (2) | | All-in Yield at Origination (3) | | Original Term (Years) | | State | | Property Type | | Initial LTV (4) | | Stabilized LTV (5) |
| Senior | | 07/18 | | $144.2 | | $113.7 | | $113.0 | | L+3.34% | | L+4.27% | | 2.0 | | CA | | Retail | | 50.7% | | 55.9% |
| Senior | | 07/16 | | 120.4 | | 115.3 | | 114.8 | | L+4.45% | | L+4.99% | | 4.0 | | Various | | Office | | 62.8% | | 61.5% |
| Senior | | 12/15 | | 120.0 | | 120.0 | | 120.0 | | L+3.65% | | L+4.43% | | 4.0 | | LA | | Mixed-Use | | 65.5% | | 60.0% |
| Senior | | 08/19 | | 100.3 | | 72.9 | | 72.2 | | L+2.80% | | L+3.26% | | 3.0 | | MN | | Office | | 73.1% | | 71.2% |
| Senior | | 07/19 | | 94.0 | | 64.0 | | 63.1 | | L+3.69% | | L+4.32% | | 3.0 | | IL | | Office | | 70.0% | | 64.4% |
| Senior | | 06/19 | | 92.4 | | 68.5 | | 67.8 | | L+3.45% | | L+3.88% | | 3.0 | | TX | | Hotel | | 56.1% | | 48.1% |
| Senior | | 12/18 | | 92.0 | | 41.5 | | 40.6 | | L+3.75% | | L+5.21% | | 3.0 | | NY | | Mixed-Use | | 26.2% | | 47.6% |
| Senior | | 05/17 | | 86.8 | | 80.7 | | 80.2 | | L+3.50% | | L+4.82% | | 4.0 | | MA | | Office | | 71.3% | | 71.5% |
| Senior | | 06/19 | | 80.0 | | 79.4 | | 78.6 | | L+2.69% | | L+3.05% | | 3.0 | | TX | | Mixed-Use | | 71.7% | | 72.2% |
| Senior | | 09/19 | | 75.6 | | 59.2 | | 58.5 | | L+3.07% | | L+3.58% | | 3.0 | | NY | | Multifamily | | 62.7% | | 67.1% |
| Senior | | 10/17 | | 74.8 | | 48.5 | | 48.2 | | L+4.07% | | L+4.47% | | 4.0 | | DC | | Office | | 67.0% | | 66.0% |
| Senior | | 11/17 | | 73.3 | | 68.8 | | 68.4 | | L+4.45% | | L+5.20% | | 3.0 | | TX | | Hotel | | 68.2% | | 61.6% |
| Senior | | 12/16 | | 71.8 | | 68.0 | | 67.3 | | L+3.75% | | L+4.87% | | 4.0 | | FL | | Office | | 73.3% | | 63.2% |
| Senior | | 06/16 | | 68.4 | | 61.1 | | 61.0 | | L+3.87% | | L+4.93% | | 4.0 | | HI | | Retail | | 76.2% | | 57.4% |
| Senior | | 11/17 | | 68.3 | | 61.9 | | 61.5 | | L+4.10% | | L+4.73% | | 3.0 | | CA | | Office | | 66.8% | | 67.0% |
| Senior | | 08/16 | | 65.0 | | 64.9 | | 64.7 | | L+3.95% | | L+5.54% | | 4.0 | | NJ | | Office | | 60.8% | | 63.0% |
| Senior | | 01/19 | | 64.5 | | 64.5 | | 63.9 | | L+3.85% | | L+4.38% | | 3.0 | | MN | | Hotel | | 67.2% | | 64.5% |
| Senior | | 04/18 | | 64.0 | | 64.0 | | 63.6 | | L+3.78% | | L+4.23% | | 3.0 | | GA | | Hotel | | 68.8% | | 59.8% |
| Senior | | 09/19 | | 60.2 | | 51.3 | | 50.8 | | L+3.00% | | L+3.63% | | 2.0 | | TX | | Office | | 64.7% | | 59.0% |
| Senior | | 12/18 | | 60.0 | | 42.8 | | 42.4 | | L+2.90% | | L+3.44% | | 3.0 | | TX | | Office | | 68.5% | | 66.7% |
| Senior | | 01/17 | | 56.2 | | 56.2 | | 56.0 | | L+4.75% | | L+5.24% | | 4.0 | | SC | | Office | | 67.6% | | 67.1% |
| Senior | | 06/19 | | 55.0 | | 50.0 | | 49.2 | | L+3.10% | | L+3.67% | | 3.0 | | AL | | Multifamily | | 69.5% | | 74.0% |
| Senior | | 12/15 | | 54.5 | | 53.0 | | 52.9 | | L+3.73% | | L+4.87% | | 4.0 | | PA | | Office | | 74.5% | | 67.5% |
| Senior | | 06/19 | | 54.1 | | 48.8 | | 48.3 | | L+3.30% | | L+3.70% | | 3.0 | | VA | | Office | | 49.3% | | 49.9% |
| Senior | | 09/17 | | 54.0 | | 54.0 | | 53.8 | | L+4.38% | | L+4.91% | | 3.0 | | NY | | Industrial | | 68.7% | | 72.0% |
| Senior | | 10/18 | | 52.2 | | 49.1 | | 48.8 | | L+2.70% | | L+3.10% | | 3.0 | | NJ | | Industrial | | 73.9% | | 68.8% |
| Senior | | 05/17 | | 52.0 | | 48.4 | | 48.2 | | L+4.70% | | L+5.50% | | 3.0 | | HI | | Hotel | | 60.8% | | 59.4% |
| Senior | | 12/18 | | 51.0 | | 51.0 | | 50.6 | | L+2.99% | | L+3.40% | | 3.0 | | IL | | Multifamily | | 78.6% | | 74.9% |
| Senior | | 09/18 | | 50.1 | | 19.2 | | 18.9 | | L+3.25% | | L+4.13% | | 3.0 | | IL | | Office | | 47.9% | | 56.1% |
| Senior | | 05/18 | | 50.0 | | 50.0 | | 49.7 | | L+3.60% | | L+3.85% | | 3.0 | | TX | | Multifamily | | 71.1% | | 71.4% |
| Senior | | 08/17 | | 50.0 | | 47.6 | | 47.3 | | L+3.09% | | L+4.88% | | 3.0 | | LA | | Multifamily | | 64.6% | | 60.9% |
| Senior | | 10/18 | | 49.1 | | 21.9 | | 21.6 | | L+4.15% | | L+5.24% | | 3.0 | | IL | | Multifamily | | 60.7% | | 62.4% |
| Senior | | 12/18 | | 49.0 | | 41.2 | | 40.8 | | L+2.93% | | L+3.39% | | 3.0 | | NY | | Industrial | | 56.5% | | 56.3% |
| Senior | | 02/16 | | 47.6 | | 46.7 | | 46.5 | | L+3.78% | | L+4.72% | | 3.0 | | TX | | Office | | 72.9% | | 70.4% |
| Senior | | 01/17 | | 47.3 | | 47.3 | | 47.2 | | L+4.50% | | L+5.16% | | 3.0 | | CA | | Industrial | | 51.0% | | 60.4% |
| Senior | | 12/17 | | 47.0 | | 36.3 | | 36.0 | | L+4.38% | | L+5.26% | | 3.0 | | MA | | Mixed-Use | | 72.9% | | 62.0% |
| Senior | | 05/18 | | 46.5 | | 31.6 | | 31.3 | | L+4.07% | | L+4.63% | | 3.0 | | NY | | Mixed-Use | | 57.0% | | 51.1% |
| Senior | | 08/19 | | 46.4 | | 38.9 | | 38.4 | | L+2.84% | | L+3.39% | | 3.0 | | GA | | Office | | 69.5% | | 68.3% |
| Senior | | 06/18 | | 46.0 | | 41.0 | | 40.7 | | L+3.60% | | L+4.06% | | 3.0 | | WY | | Hotel | | 67.4% | | 62.3% |
| Senior | | 08/18 | | 44.8 | | 41.7 | | 41.5 | | L+2.93% | | L+3.32% | | 3.0 | | TX | | Multifamily | | 68.9% | | 63.6% |
| Senior | | 05/19 | | 44.1 | | 40.6 | | 40.3 | | L+3.20% | | L+3.60% | | 3.0 | | NY | | Mixed-Use | | 59.7% | | 55.1% |
| Senior | | 11/15 | | 41.6 | | 41.6 | | 41.6 | | L+4.75% | | L+4.67% | | 3.0 | | NY | | Office | | 66.4% | | 68.7% |
| Senior | | 08/17 | | 40.0 | | 40.0 | | 39.9 | | L+4.24% | | L+4.40% | | 3.0 | | KY | | Multifamily | | 79.8% | | 73.1% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | | | | | | | | | | | | | | | | | | | | | | |
Type (1) | | Origination/ Acquisition Date | | Maximum Loan Commitment | | Principal Balance | | Carrying Value | | Cash Coupon (2) | | All-in Yield at Origination (3) | | Original Term (Years) | | State | | Property Type | | Initial LTV (4) | | Stabilized LTV (5) |
| Senior | | 08/18 | | 44.8 | | 42.7 | | 42.4 | | L+2.93% | | L+3.32% | | 3.0 | | TX | | Multifamily | | 68.9% | | 63.6% |
| Senior | | 05/19 | | 44.1 | | 40.6 | | 40.1 | | L+3.20% | | L+3.60% | | 3.0 | | NY | | Mixed-Use | | 59.7% | | 55.1% |
| Senior | | 10/19 | | 42.9 | | 31.6 | | 31.1 | | L+2.75% | | L+3.28% | | 3.0 | | CA | | Office | | 70.6% | | 67.8% |
| Senior | | 08/17 | | 40.0 | | 40.0 | | 35.9 | | L+4.24% | | L+4.40% | | 3.0 | | KY | | Multifamily | | 79.8% | | 73.1% |
| Senior | | 05/18 | | 38.8 | | 33.0 | | 32.9 | | L+3.18% | | L+3.95% | | 3.0 | | MA | | Office | | 47.0% | | 41.1% |
| Senior | | 07/19 | | 37.5 | | 35.5 | | 33.2 | | L+3.70% | | L+4.43% | | 3.0 | | NJ | | Hotel | | 47.8% | | 54.6% |
| Senior | | 12/17 | | 37.2 | | 35.3 | | 34.9 | | L+3.90% | | L+4.55% | | 3.0 | | CA | | Office | | 69.8% | | 66.4% |
| Senior | | 11/18 | | 37.1 | | 24.2 | | 23.4 | | L+3.60% | | L+5.50% | | 3.0 | | CA | | Mixed-Use | | 69.9% | | 67.9% |
| Senior | | 10/18 | | 36.8 | | 30.1 | | 29.6 | | L+2.85% | | L+3.45% | | 3.0 | | NY | | Industrial | | 71.2% | | 70.8% |
| Senior | | 05/17 | | 35.2 | | 31.2 | | 29.8 | | L+5.00% | | L+5.97% | | 3.0 | | TX | | Office | | 68.7% | | 65.1% |
| Senior | | 06/18 | | 34.9 | | 30.3 | | 28.3 | | L+4.07% | | L+4.75% | | 3.0 | | OH | | Hotel | | 70.6% | | 57.4% |
| Senior | | 03/20 | | 34.9 | | 12.2 | | 11.8 | | L+3.42% | | L+4.66% | | 3.0 | | GA | | Office | | 63.2% | | 64.6% |
| Senior | | 12/18 | | 34.2 | | 27.9 | | 27.6 | | L+2.92% | | L+3.27% | | 4.0 | | IL | | Multifamily | | 70.8% | | 62.1% |
| Senior | | 10/17 | | 34.1 | | 23.8 | | 23.5 | | L+4.05% | | L+4.69% | | 3.0 | | AZ | | Office | | 62.6% | | 59.5% |
| Senior | | 05/17 | | 33.8 | | 29.7 | | 28.4 | | L+4.40% | | L+5.36% | | 3.0 | | AZ | | Office | | 69.5% | | 59.0% |
| Senior | | 03/16 | | 33.8 | | 33.8 | | 33.3 | | 5.11% | | 5.26% | | 10.0 | | NJ | | Office | | 74.9% | | 74.9% |
| Senior | | 10/19 | | 33.7 | | 25.9 | | 25.4 | | L+3.15% | | L+3.75% | | 3.0 | | CA | | Office | | 70.6% | | 64.2% |
| Senior | | 03/20 | | 33.5 | | 24.8 | | 24.4 | | L+2.80% | | L+3.27% | | 3.0 | | CA | | Office | | 63.6% | | 66.7% |
| Senior | | 11/19 | | 33.2 | | 28.4 | | 27.9 | | L+2.70% | | L+3.14% | | 3.0 | | NC | | Multifamily | | 80.0% | | 72.8% |
| Senior | | 03/19 | | 32.1 | | 27.5 | | 27.3 | | L+2.97% | | L+3.42% | | 3.0 | | NY | | Office | | 53.8% | | 48.5% |
| Senior | | 08/19 | | 32.0 | | 14.5 | | 14.1 | | L+3.32% | | L+5.27% | | 3.0 | | MA | | Office | | 76.5% | | 54.1% |
| Senior | | 08/19 | | 31.7 | | 27.3 | | 26.9 | | L+2.80% | | L+3.53% | | 3.0 | | LA | | Multifamily | | 74.1% | | 72.4% |
| Senior | | 11/19 | | 31.3 | | 31.1 | | 30.7 | | L+2.75% | | L+3.27% | | 2.0 | | IL | | Multifamily | | 72.7% | | 72.7% |
| Senior | | 08/19 | | 31.3 | | 25.6 | | 25.1 | | L+2.90% | | L+3.38% | | 3.0 | | TX | | Multifamily | | 79.3% | | 72.5% |
| Senior | | 05/17 | | 30.9 | | 28.9 | | 28.5 | | L+3.50% | | L+5.19% | | 4.0 | | FL | | Office | | 69.3% | | 68.5% |
| Senior | | 07/17 | | 30.0 | | 30.0 | | 29.7 | | L+4.10% | | L+4.58% | | 3.0 | | NY | | Multifamily | | 76.5% | | 76.5% |
| Senior | | 06/18 | | 29.3 | | 27.5 | | 27.2 | | L+3.40% | | L+4.18% | | 3.0 | | CA | | Office | | 69.1% | | 64.3% |
| Senior | | 06/18 | | 29.0 | | 29.0 | | 28.3 | | L+3.55% | | L+3.96% | | 3.0 | | TX | | Multifamily | | 74.3% | | 68.2% |
| Senior | | 11/18 | | 28.6 | | 25.7 | | 25.5 | | L+3.50% | | L+4.12% | | 3.0 | | TN | | Office | | 61.8% | | 63.6% |
| Senior | | 11/15 | | 28.5 | | 28.5 | | 28.1 | | L+4.75% | | L+4.67% | | 3.0 | | NY | | Office | | 66.4% | | 68.7% |
| Senior | | 11/19 | | 27.7 | | 18.5 | | 18.3 | | L+3.18% | | L+3.64% | | 3.0 | | CA | | Office | | 61.7% | | 62.8% |
| Senior | | 01/19 | | 27.6 | | 26.4 | | 26.2 | | L+2.97% | | L+3.38% | | 3.0 | | TX | | Multifamily | | 64.9% | | 64.9% |
| Senior | | 12/18 | | 27.5 | | 26.2 | | 24.7 | | L+3.90% | | L+4.42% | | 3.0 | | MN | | Hotel | | 64.7% | | 57.7% |
| Senior | | 06/17 | | 27.0 | | 24.0 | | 23.5 | | L+3.83% | | L+5.24% | | 3.0 | | CA | | Hotel | | 54.7% | | 48.6% |
| Senior | | 01/19 | | 27.0 | | 23.8 | | 23.5 | | L+2.90% | | L+3.44% | | 3.0 | | MA | | Office | | 71.2% | | 70.1% |
| Senior | | 09/17 | | 26.9 | | 23.9 | | 22.6 | | L+4.90% | | L+5.52% | | 3.0 | | MA | | Hotel | | 67.3% | | 63.9% |
| Senior | | 08/19 | | 26.8 | | 24.3 | | 23.8 | | L+3.15% | | L+3.67% | | 3.0 | | SC | | Multifamily | | 67.0% | | 58.7% |
| Senior | | 07/17 | | 26.0 | | 24.9 | | 24.8 | | L+3.15% | | L+4.86% | | 3.0 | | CA | | Office | | 62.3% | | 64.2% |
| Senior | | 01/18 | | 26.0 | | 26.0 | | 24.3 | | L+5.13% | | L+5.58% | | 3.0 | | AZ | | Hotel | | 65.8% | | 61.3% |
| Senior | | 12/18 | | 26.0 | | 21.2 | | 21.0 | | L+2.95% | | L+3.43% | | 3.0 | | FL | | Office | | 61.9% | | 65.5% |
| Senior | | 06/18 | | 25.9 | | 25.9 | | 25.5 | | L+3.50% | | L+4.37% | | 3.0 | | PA | | Industrial | | 72.1% | | 66.1% |
| Senior | | 09/18 | | 25.5 | | 22.0 | | 20.9 | | L+3.87% | | L+4.42% | | 3.0 | | NY | | Mixed-Use | | 60.2% | | 59.3% |
| Senior | | 06/19 | | 25.5 | | 25.5 | | 23.8 | | L+4.50% | | L+5.05% | | 3.0 | | NY | | Other | | 39.6% | | 39.6% |
| Senior | | 10/15 | | 25.0 | | 25.0 | | 23.7 | | L+4.07% | | L+5.76% | | 3.0 | | MO | | Hotel | | 73.2% | | 57.8% |
| Senior | | 08/19 | | 25.0 | | 23.9 | | 23.5 | | L+2.66% | | L+3.07% | | 2.0 | | OK | | Multifamily | | 79.9% | | 74.2% |
| Senior | | 07/19 | | 24.0 | | 16.6 | | 16.4 | | L+3.00% | | L+3.60% | | 3.0 | | OH | | Office | | 63.1% | | 66.1% |
| Senior | | 10/18 | | 23.7 | | 23.5 | | 22.0 | | L+4.21% | | L+5.16% | | 3.0 | | CT | | Hotel | | 75.4% | | 66.9% |
| Senior | | 03/19 | | 23.4 | | 23.4 | | 22.9 | | L+3.27% | | L+3.79% | | 3.0 | | WI | | Multifamily | | 72.4% | | 75.2% |
| Senior | | 01/18 | | 23.4 | | 21.4 | | 21.0 | | L+4.77% | | L+5.50% | | 3.0 | | PA | | Mixed-Use | | 66.8% | | 67.3% |
| Senior | | 07/19 | | 23.3 | | 20.0 | | 19.8 | | L+2.95% | | L+3.51% | | 3.0 | | CA | | Office | | 62.3% | | 62.6% |
| Senior | | 08/16 | | 23.3 | | 23.3 | | 22.9 | | L+5.15% | | L+5.42% | | 4.0 | | NY | | Industrial | | 70.0% | | 67.6% |
| Senior | | 03/18 | | 23.0 | | 23.0 | | 21.1 | | L+4.05% | | L+4.65% | | 2.0 | | FL | | Office | | 60.8% | | 60.8% |
| Senior | | 06/18 | | 22.8 | | 17.3 | | 16.7 | | L+4.21% | | L+4.73% | | 3.0 | | FL | | Retail | | 74.0% | | 69.4% |
| Senior | | 01/19 | | 22.7 | | 22.5 | | 22.2 | | L+2.99% | | L+3.40% | | 3.0 | | WI | | Multifamily | | 69.3% | | 73.5% |
| Senior | | 04/18 | | 22.2 | | 22.2 | | 22.1 | | L+4.05% | | L+4.46% | | 3.0 | | KS | | Multifamily | | 72.1% | | 67.4% |
| Senior | | 08/17 | | 21.9 | | 18.9 | | 18.7 | | L+4.77% | | L+5.49% | | 3.0 | | PA | | Office | | 66.7% | | 67.3% |
38
|
| | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | | | | | | | | | | | | | | | | | | | | |
Type (1) | | Origination/ Acquisition Date | | Maximum Loan Commitment | | Principal Balance | | Carrying Value | | Cash Coupon (2) | | All-in Yield at Origination (3) | | Original Term (Years) | | State | | Property Type | | Initial LTV (4) | | Stabilized LTV (5) |
| Senior | | 03/19 | | 39.7 | | 30.3 | | 29.9 | | L+2.90% | | L+3.54% | | 3.0 | | NY | | Office | | 63.2% | | 63.9% |
| Senior | | 05/18 | | 38.8 | | 32.5 | | 32.3 | | L+3.55% | | L+3.95% | | 3.0 | | MA | | Office | | 47.0% | | 41.1% |
| Senior | | 07/19 | | 37.5 | | 32.7 | | 32.4 | | L+3.70% | | L+4.43% | | 3.0 | | NJ | | Hotel | | 47.8% | | 54.6% |
| Senior | | 12/17 | | 37.2 | | 34.3 | | 34.1 | | L+3.90% | | L+4.55% | | 3.0 | | CA | | Office | | 69.8% | | 66.4% |
| Senior | | 11/18 | | 37.1 | | 18.0 | | 17.7 | | L+3.60% | | L+5.50% | | 3.0 | | CA | | Mixed-Use | | 69.9% | | 67.9% |
| Senior | | 11/16 | | 37.0 | | 34.4 | | 34.3 | | L+4.27% | | L+5.03% | | 3.0 | | NY | | Multifamily | | 61.3% | | 56.9% |
| Senior | | 10/18 | | 36.8 | | 29.7 | | 29.4 | | L+2.85% | | L+3.45% | | 3.0 | | NY | | Industrial | | 71.2% | | 70.8% |
| Senior | | 05/17 | | 35.2 | | 30.0 | | 29.9 | | L+5.00% | | L+5.97% | | 3.0 | | TX | | Office | | 68.7% | | 65.1% |
| Senior | | 06/18 | | 34.9 | | 26.7 | | 26.5 | | L+4.07% | | L+4.75% | | 3.0 | | OH | | Hotel | | 70.6% | | 57.4% |
| Senior | | 12/18 | | 34.2 | | 26.9 | | 26.7 | | L+2.92% | | L+3.27% | | 4.0 | | IL | | Multifamily | | 70.8% | | 62.1% |
| Senior | | 10/17 | | 34.1 | | 23.5 | | 23.4 | | L+4.05% | | L+4.69% | | 3.0 | | AZ | | Office | | 62.6% | | 59.5% |
| Senior | | 05/17 | | 33.8 | | 29.1 | | 28.9 | | L+4.40% | | L+5.36% | | 3.0 | | AZ | | Office | | 69.5% | | 59.0% |
| Senior | | 03/16 | | 33.8 | | 33.8 | | 33.7 | | 5.11% | | 5.26% | | 10.0 | | NJ | | Office | | 74.9% | | 74.9% |
| Senior | | 03/19 | | 32.0 | | 26.9 | | 26.6 | | L+2.97% | | L+3.42% | | 3.0 | | NY | | Office | | 53.8% | | 48.5% |
| Senior | | 08/19 | | 32.0 | | 6.2 | | 5.9 | | L+3.32% | | L+5.27% | | 3.0 | | MA | | Office | | 76.5% | | 54.1% |
| Senior | | 08/19 | | 31.7 | | 23.5 | | 23.1 | | L+2.80% | | L+3.53% | | 3.0 | | LA | | Multifamily | | 74.1% | | 72.4% |
| Senior | | 05/17 | | 30.9 | | 28.7 | | 28.6 | | L+3.50% | | L+5.19% | | 4.0 | | FL | | Office | | 69.3% | | 68.5% |
| Senior | | 07/17 | | 30.0 | | 30.0 | | 29.9 | | L+4.10% | | L+4.58% | | 3.0 | | NY | | Multifamily | | 76.5% | | 76.5% |
| Senior | | 08/19 | | 29.4 | | 23.6 | | 23.3 | | L+2.90% | | L+3.38% | | 3.0 | | TX | | Multifamily | | 79.3% | | 72.5% |
| Senior | | 06/18 | | 29.3 | | 23.6 | | 23.3 | | L+3.40% | | L+4.18% | | 3.0 | | CA | | Office | | 69.1% | | 64.3% |
| Senior | | 06/18 | | 29.0 | | 29.0 | | 28.8 | | L+3.55% | | L+3.96% | | 3.0 | | TX | | Multifamily | | 74.3% | | 68.2% |
| Senior | | 11/18 | | 28.6 | | 23.8 | | 23.5 | | L+3.50% | | L+4.12% | | 3.0 | | TN | | Office | | 61.8% | | 63.6% |
| Senior | | 01/19 | | 27.6 | | 24.6 | | 24.5 | | L+2.97% | | L+3.38% | | 3.0 | | TX | | Multifamily | | 64.9% | | 64.9% |
| Senior | | 12/18 | | 27.5 | | 22.1 | | 21.9 | | L+3.90% | | L+4.42% | | 3.0 | | MN | | Hotel | | 64.7% | | 57.7% |
| Senior | | 01/19 | | 27.0 | | 22.1 | | 21.9 | | L+2.90% | | L+3.44% | | 3.0 | | MA | | Office | | 71.2% | | 70.1% |
| Senior | | 06/17 | | 27.0 | | 24.0 | | 23.9 | | L+3.83% | | L+5.24% | | 3.0 | | CA | | Hotel | | 54.7% | | 48.6% |
| Senior | | 08/19 | | 26.8 | | 21.7 | | 21.5 | | L+3.15% | | L+3.67% | | 3.0 | | SC | | Multifamily | | 67.0% | | 58.7% |
| Senior | | 01/18 | | 26.0 | | 26.0 | | 25.9 | | L+5.13% | | L+5.58% | | 3.0 | | AZ | | Hotel | | 65.8% | | 61.3% |
| Senior | | 12/18 | | 26.0 | | 21.1 | | 21.0 | | L+2.95% | | L+3.43% | | 3.0 | | FL | | Office | | 61.9% | | 65.5% |
| Senior | | 07/17 | | 26.0 | | 24.0 | | 24.0 | | L+3.15% | | L+4.86% | | 3.0 | | CA | | Office | | 62.3% | | 64.2% |
| Senior | | 06/18 | | 25.9 | | 25.9 | | 25.7 | | L+3.50% | | L+4.37% | | 3.0 | | PA | | Industrial | | 72.1% | | 66.1% |
| Senior | | 09/18 | | 25.5 | | 21.4 | | 21.3 | | L+3.87% | | L+4.42% | | 3.0 | | NY | | Mixed-Use | | 60.2% | | 59.3% |
| Senior | | 06/19 | | 25.5 | | 25.5 | | 25.2 | | L+4.50% | | L+5.05% | | 3.0 | | NY | | Other | | 39.6% | | 39.6% |
| Senior | | 10/15 | | 25.0 | | 25.0 | | 24.8 | | L+4.07% | | L+5.76% | | 3.0 | | MO | | Hotel | | 73.2% | | 57.8% |
| Senior | | 08/19 | | 25.0 | | 23.9 | | 23.8 | | L+2.66% | | L+3.07% | | 2.0 | | OK | | Multifamily | | 79.9% | | 74.2% |
| Senior | | 07/19 | | 24.0 | | 15.2 | | 15.0 | | L+3.00% | | L+3.60% | | 3.0 | | OH | | Office | | 63.1% | | 66.1% |
| Senior | | 10/18 | | 23.7 | | 19.3 | | 19.1 | | L+4.21% | | L+5.16% | | 3.0 | | CT | | Hotel | | 75.4% | | 66.9% |
| Senior | | 09/17 | | 23.5 | | 23.5 | | 23.4 | | L+4.90% | | L+5.52% | | 3.0 | | MA | | Hotel | | 67.3% | | 63.9% |
| Senior | | 08/16 | | 23.4 | | 23.4 | | 23.3 | | L+5.15% | | L+5.42% | | 4.0 | | NY | | Industrial | | 70.0% | | 67.6% |
| Senior | | 01/18 | | 23.4 | | 21.0 | | 20.9 | | L+4.77% | | L+5.50% | | 3.0 | | PA | | Mixed-Use | | 66.8% | | 67.3% |
| Senior | | 03/19 | | 23.3 | | 22.0 | | 21.8 | | L+3.27% | | L+3.79% | | 3.0 | | WI | | Multifamily | | 72.4% | | 75.2% |
| Senior | | 07/19 | | 23.3 | | 20.0 | | 19.7 | | L+2.95% | | L+3.51% | | 3.0 | | CA | | Office | | 62.3% | | 62.6% |
| Senior | | 03/18 | | 23.0 | | 23.0 | | 22.9 | | L+4.05% | | L+4.65% | | 2.0 | | FL | | Office | | 60.8% | | 60.8% |
| Senior | | 06/18 | | 22.8 | | 16.8 | | 16.6 | | L+4.21% | | L+4.73% | | 3.0 | | FL | | Retail | | 74.0% | | 69.4% |
| Senior | | 01/19 | | 22.7 | | 22.3 | | 22.2 | | L+2.99% | | L+3.40% | | 3.0 | | WI | | Multifamily | | 69.3% | | 73.5% |
| Senior | | 08/17 | | 22.6 | | 22.6 | | 22.5 | | L+4.20% | | L+4.50% | | 3.0 | | NY | | Office | | 72.7% | | 66.7% |
| Senior | | 04/18 | | 22.2 | | 20.7 | | 20.7 | | L+4.05% | | L+4.46% | | 3.0 | | KS | | Multifamily | | 72.1% | | 67.4% |
| Senior | | 12/18 | | 21.8 | | 7.5 | | 7.3 | | L+4.44% | | L+5.56% | | 3.0 | | PA | | Multifamily | | 61.5% | | 67.0% |
| Senior | | 10/18 | | 21.4 | | 18.2 | | 18.1 | | L+3.24% | | L+3.69% | | 3.0 | | TX | | Office | | 73.0% | | 69.9% |
| Senior | | 12/18 | | 21.3 | | 19.6 | | 19.6 | | L+3.42% | | L+3.88% | | 2.0 | | MN | | Multifamily | | 73.6% | | 73.7% |
| Senior | | 07/17 | | 21.3 | | 21.3 | | 21.2 | | L+2.98% | | L+4.42% | | 3.0 | | GA | | Multifamily | | 75.6% | | 75.2% |
| Senior | | 03/19 | | 21.0 | | 18.3 | | 18.1 | | L+2.93% | | L+3.40% | | 3.0 | | KY | | Multifamily | | 69.8% | | 69.9% |
| Senior | | 06/19 | | 21.0 | | 18.7 | | 18.5 | | L+2.90% | | L+4.24% | | 3.0 | | GA | | Mixed-Use | | 60.6% | | 67.4% |
| Senior | | 06/19 | | 20.9 | | 9.7 | | 9.4 | | 10.00% | | 14.17% | | 1.0 | | FL | | Other | | 39.7% | | 57.2% |
| Senior | | 10/16 | | 20.7 | | 20.7 | | 20.7 | | L+4.55% | | L+5.16% | | 3.0 | | CA | | Office | | 68.6% | | 48.6% |
| | | (dollars in millions) | (dollars in millions) | | (dollars in millions) | | |
Type (1) | | Origination/ Acquisition Date | | Maximum Loan Commitment | | Principal Balance | | Carrying Value | | Cash Coupon (2) | | All-in Yield at Origination (3) | | Original Term (Years) | | State | | Property Type | | Initial LTV (4) | | Stabilized LTV (5) | Type (1) | | Origination/ Acquisition Date | | Maximum Loan Commitment | | Principal Balance | | Carrying Value | | Cash Coupon (2) | | All-in Yield at Origination (3) | | Original Term (Years) | | State | | Property Type | | Initial LTV (4) | | Stabilized LTV (5) |
| Senior | | 03/18 | | 19.8 | | 19.8 | | 19.6 | | L+5.15% | | L+5.71% | | 3.0 | | CA | | Hotel | | 67.2% | | 60.0% | Senior | | 12/18 | | 21.8 | | 11.8 | | 11.6 | | L+4.44% | | L+5.56% | | 3.0 | | PA | | Multifamily | | 70.1% | | 67.0% |
| CMBS | | 11/15 | | 19.6 | | 19.6 | | 19.6 | | L+7.25% | | L+8.06% | | 2.8 | | Various | | Office | | 77.6% | | 77.5% | |
| Senior | | Senior | | 07/17 | | 21.5 | | 21.5 | | 21.4 | | L+2.98% | | L+4.42% | | 3.0 | | GA | | Multifamily | | 75.6% | | 75.2% |
| Senior | | Senior | | 10/18 | | 21.5 | | 18.4 | | 18.3 | | L+3.24% | | L+3.69% | | 3.0 | | TX | | Office | | 73.0% | | 69.9% |
| Senior | | Senior | | 12/18 | | 21.2 | | 19.7 | | 19.5 | | L+3.42% | | L+3.88% | | 2.0 | | MN | | Multifamily | | 73.6% | | 73.7% |
| Senior | | Senior | | 08/17 | | 21.2 | | 21.2 | | 21.0 | | L+4.20% | | L+4.50% | | 3.0 | | NY | | Office | | 72.7% | | 66.7% |
| Senior | | 01/17 | | 19.0 | | 19.0 | | 18.9 | | L+4.80% | | L+5.27% | | 4.0 | | TX | | Retail | | 70.4% | | 69.5% | Senior | | 03/19 | | 21.0 | | 20.0 | | 19.7 | | L+2.93% | | L+3.40% | | 3.0 | | KY | | Multifamily | | 69.8% | | 69.9% |
| Senior | | 11/18 | | 18.9 | | 13.6 | | 13.4 | | L+3.20% | | L+3.83% | | 3.0 | | CA | | Office | | 73.1% | | 64.5% | Senior | | 06/19 | | 21.0 | | 19.5 | | 19.3 | | L+2.90% | | L+4.24% | | 3.0 | | GA | | Mixed-Use | | 60.6% | | 67.4% |
| Senior | | 04/18 | | 18.7 | | 18.7 | | 18.6 | | L+4.29% | | L+4.65% | | 3.0 | | NV | | Multifamily | | 78.7% | | 66.1% | Senior | | 06/19 | | 20.9 | | 15.2 | | 14.7 | | 10.00% | | 14.17% | | 1.0 | | FL | | Other | | 39.7% | | 57.2% |
| Senior | | 04/18 | | 18.5 | | 18.5 | | 18.4 | | L+3.25% | | L+3.53% | | 3.0 | | CA | | Multifamily | | 77.1% | | 70.6% | Senior | | 11/18 | | 19.0 | | 15.8 | | 15.5 | | L+3.20% | | L+3.83% | | 3.0 | | CA | | Office | | 73.1% | | 64.5% |
| Senior | | 04/18 | | 18.5 | | 18.5 | | 18.4 | | L+3.25% | | L+3.53% | | 3.0 | | CA | | Multifamily | | 76.8% | | 64.0% | Senior | | 04/18 | | 18.7 | | 18.7 | | 18.6 | | L+4.29% | | L+4.65% | | 3.0 | | NV | | Multifamily | | 78.7% | | 66.1% |
| Senior | | 08/19 | | 18.5 | | 18.5 | | 18.2 | | L+2.97% | | L+3.45% | | 3.0 | | TN | | Multifamily | | 63.6% | | 62.1% | Senior | | 08/19 | | 18.4 | | 18.4 | | 18.2 | | L+2.97% | | L+3.45% | | 3.0 | | TN | | Multifamily | | 63.6% | | 62.1% |
| Senior | | 01/19 | | 18.3 | | 16.0 | | 15.8 | | L+3.40% | | L+4.14% | | 3.0 | | TX | | Multifamily | | 72.2% | | 68.2% | Senior | | 01/19 | | 18.3 | | 18.1 | | 17.8 | | L+3.40% | | L+4.14% | | 3.0 | | TX | | Multifamily | | 72.2% | | 68.2% |
| Senior | | 08/17 | | 17.9 | | 17.9 | | 17.8 | | L+4.77% | | L+5.49% | | 3.0 | | PA | | Office | | 66.7% | | 67.3% | Senior | | 07/18 | | 16.6 | | 11.4 | | 11.0 | | L+3.75% | | L+4.35% | | 3.0 | | CA | | Office | | 77.1% | | 63.5% |
| Senior | | 07/18 | | 16.6 | | 10.7 | | 10.6 | | L+3.75% | | L+4.35% | | 3.0 | | CA | | Office | | 77.1% | | 63.5% | Senior | | 09/18 | | 16.5 | | 16.5 | | 16.5 | | L+2.85% | | L+3.06% | | 3.0 | | SC | | Multifamily | | 79.4% | | 72.2% |
| Senior | | 09/18 | | 16.5 | | 16.5 | | 16.5 | | L+2.85% | | L+3.06% | | 3.0 | | SC | | Multifamily | | 79.4% | | 72.2% | Senior | | 11/18 | | 16.2 | | 16.2 | | 16.0 | | L+3.15% | | L+3.65% | | 3.0 | | TX | | Multifamily | | 68.8% | | 68.7% |
| Senior | | 11/18 | | 16.2 | | 16.1 | | 16.0 | | L+3.15% | | L+3.65% | | 3.0 | | TX | | Multifamily | | 68.8% | | 68.7% | Senior | | 06/19 | | 15.2 | | 10.6 | | 10.4 | | L+3.96% | | L+4.69% | | 3.0 | | NY | | Office | | 40.7% | | 60.0% |
| Senior | | 06/19 | | 15.2 | | 9.3 | | 9.1 | | L+3.96% | | L+4.69% | | 3.0 | | NY | | Office | | 40.7% | | 60.0% | Senior | | 04/19 | | 14.3 | | 12.6 | | 12.5 | | L+3.75% | | L+4.31% | | 3.0 | | OH | | Multifamily | | 62.6% | | 65.4% |
| Mezzanine | | 01/17 | | 14.5 | | 14.5 | | 14.5 | | 8.00% | | 8.11% | | 10.0 | | HI | | Hotel | | 41.4% | | 36.2% | Mezzanine | | 01/17 | | 14.3 | | 14.3 | | 14.1 | | 8.00% | | 8.11% | | 10.0 | | HI | | Hotel | | 41.4% | | 36.2% |
| CMBS | | CMBS | | 12/15 | | 12.8 | | 12.8 | | 12.5 | | L+6.91% | | L+7.20% | | 2.8 | | Various | | Office | | 65.8% | | 65.8% |
| Senior | | 04/19 | | 14.3 | | 11.3 | | 11.1 | | L+3.75% | | L+4.31% | | 3.0 | | OH | | Multifamily | | 62.6% | | 65.4% | Senior | | 09/19 | | 12.0 | | 11.8 | | 11.6 | | L+2.99% | | L+3.50% | | 3.0 | | WI | | Multifamily | | 51.4% | | 75.0% |
| CMBS | | 12/15 | | 12.8 | | 12.8 | | 12.8 | | L+6.91% | | L+6.95% | | 2.8 | | Various | | Office | | 65.8% | | 65.8% | CMBS | | 11/15 | | 11.7 | | 11.7 | | 10.8 | | L+7.25% | | L+8.06% | | 2.8 | | Various | | Office | | 77.6% | | 77.5% |
| Senior | | 09/19 | | 12.0 | | 7.7 | | 7.7 | | L+2.99% | | L+3.50% | | 3.0 | | WI | | Multifamily | | 51.4% | | 75.0% | |
| Mezzanine | | 08/15 | | 9.9 | | 9.9 | | 9.9 | | L+9.50% | | L+9.84% | | 5.0 | | GA | | Office | | 73.3% | | 67.1% | Mezzanine | | 08/15 | | 9.9 | | 9.9 | | 8.4 | | L+9.50% | | L+9.84% | | 5.0 | | GA | | Office | | 73.3% | | 67.1% |
| Mezzanine | | 11/15 | | 3.9 | | 3.9 | | 3.9 | | 13.00% | | 12.50% | | 10.0 | | NY | | Hotel | | 68.3% | | 58.0% | Mezzanine | | 11/15 | | 3.0 | | 3.0 | | 2.7 | | 13.00% | | 12.50% | | 10.0 | | NY | | Hotel | | 68.3% | | 58.0% |
| Total/Weighted Average | Total/Weighted Average | | $4,655.2 | | $3,988.2 | | $3,959.5 | | L+3.71% | | L+4.40% | | 3.2 | | 66.1% | | 63.7% | Total/Weighted Average | | | $5,093.5 | | $4,415.8 | | $4,313.4 | | L+3.54% | | L+4.22% | | 3.2 | | 66.3% | | 63.7% |
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(1) | “Senior” means a loan primarily secured by a first priority lien on commercial real property and related personal property and also includes, when applicable, any companion subordinate loans. |
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(2) | Cash coupon does not include origination or exit fees. Weighted average cash coupon excludes fixed rate loans. |
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(3) | Yield includes net origination fees and exit fees, but does not include future fundings, and is expressed as a monthly equivalent. Weighted average yield excludes fixed rate loans. |
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(4) | (1)“Senior” means a loan 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)Cash coupon does not include origination or exit fees. Weighted average cash coupon excludes fixed rate loans. (3)Yield includes net origination fees and exit fees, but does not include future fundings, and is expressed as a monthly equivalent. Weighted average yield excludes fixed rate loans. (4)Initial loan-to-value ratio, or initial LTV, is calculated as the initial loan amount (plus any financing that is pari passu with or senior to such loan) divided by the as is appraised value (as determined in conformance with the Uniform Standards of Professional Appraisal Practice, or USPAP) as of the date of the loan was originated set forth in the original appraisal. (5)pari passu with or senior to such loan) divided by the as is appraised value (as determined in conformance with the Uniform Standards of Professional Appraisal Practice, or USPAP) as of the date of the loan was originated set forth in the original appraisal. |
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(5) | Stabilized loan-to-value ratio, or stabilized LTV, is calculated as the fully funded loan amount (plus any financing that is pari passu with or senior to such loan), including all contractually provided for future fundings, divided by the as stabilized value (as determined in conformance with USPAP) set forth in the original appraisal. As stabilized value may be based on certain assumptions, such as future construction completion, projected re-tenanting, payment of tenant improvement or leasing commissions allowances or free or abated rent periods, or increased tenant occupancies. |
As of SeptemberJune 30, 2019,2020, our borrowings consisted of repurchase agreements collateralized by loans held-for-investment, AFS and HTM securities (CMBS) and certain cash balances, securitized debt obligations issued by CLOs and collateralized by pools of loans held-for-investment, asset-specific financings collateralized by loans held-for-investment, a revolving credit facility collateralized by a borrowing base of loans held-for-investment and long-term unsecured convertible senior notes.
As of SeptemberJune 30, 2019,2020, we had outstanding $1.7$2.0 billion of repurchase agreements, and the term to maturity ranged from 398 days to approximately three2.5 years. Repurchase agreements had a weighted average borrowing rate of 4.22%2.24% and weighted average remaining maturities of 1.91.5 years as of SeptemberJune 30, 2019.2020.
As of SeptemberJune 30, 2019,2020, we had outstanding $1.1 billion$983.5 million of securitized debt obligations with a weighted average borrowing rate of 3.72%1.81% and weighted average remaining maturities of 1.51.1 years.
As of SeptemberJune 30, 2019,2020, we had outstanding $114.1$121.2 million of asset-specific financings with a weighted average borrowing rate of 4.0%2.0% and weighted average remaining maturities of 2.41.6 years.
As of June 30, 2020, we had outstanding $12.6 million of revolving credit facilities with a weighted average borrowing rate of 2.4% and weighted average remaining maturities of 3 days. Our revolving credit facility provides intermediate-term bridge or transitional financing for typically around 90 days per loan.
As of SeptemberJune 30, 2019,2020, the total outstanding amount due on convertible senior notes was $269.2$270.4 million, net of deferred issuance costs. The notes are unsecured and pay interest semiannually at a rate of 5.625% per annum on the notes maturing in December 2022 and a rate of 6.375% per annum on the notes maturing in October 2023. As of SeptemberJune 30, 2019,2020, the notes had a conversion rate of 50.487350.7073 and 48.8496 shares of common stock per $1,000 principal amount of the notes, respectively.
As of SeptemberJune 30, 2019,2020, the debt-to-equity ratio with respect to our loans held-for-investment, AFS securities and HTM securities, defined as total debt, net of cash, divided by equity, was 3.0:3.5:1.0. We believe our debt-to-equity ratio provides unused borrowing capacity and, thus, improves our liquidity and the strength of our balance sheet.
The following table provides the quarterly average balances, the quarter-end balances and the maximum balances at any month-end within that quarterly period, of borrowings under repurchase agreements, asset-specific financings, revolving credit facilities, securitized debt obligations and convertible senior notes for the three months ended September June 30, 2019,2020, and the four immediately preceding quarters:
| | | | | | | | | | | | | | | | | | | |
| (in thousands) | Quarterly Average | | End of Period Balance | | Maximum Balance of Any Month-End | | |
| For the Three Months Ended June 30, 2020 | $ | 3,443,291 | | | $ | 3,418,705 | | | $ | 3,446,516 | | | |
| For the Three Months Ended March 31, 2020 | $ | 3,422,580 | | | $ | 3,481,865 | | | $ | 3,481,865 | | | |
| For the Three Months Ended December 31, 2019 | $ | 3,299,023 | | | $ | 3,393,172 | | | $ | 3,393,172 | | | |
| For the Three Months Ended September 30, 2019 | $ | 3,015,152 | | | $ | 3,233,053 | | | $ | 3,233,053 | | | |
| For the Three Months Ended June 30, 2019 | $ | 2,549,873 | | | $ | 2,731,238 | | | $ | 2,731,238 | | | |
|
| | | | | | | | | | | |
| (in thousands) | Quarterly Average | | End of Period Balance | | Maximum Balance of Any Month-End |
| For the Three Months Ended September 30, 2019 | $ | 3,015,152 |
| | $ | 3,233,053 |
| | $ | 3,233,053 |
|
| For the Three Months Ended June 30, 2019 | $ | 2,549,873 |
| | $ | 2,731,238 |
| | $ | 2,731,238 |
|
| For the Three Months Ended March 31, 2019 | $ | 2,444,276 |
| | $ | 2,459,932 |
| | $ | 2,586,880 |
|
| For the Three Months Ended December 31, 2018 | $ | 2,272,209 |
| | $ | 2,497,944 |
| | $ | 2,497,944 |
|
| For the Three Months Ended September 30, 2018 | $ | 1,953,052 |
| | $ | 2,074,563 |
| | $ | 2,074,563 |
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Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our target investments and operations, make distributions to our stockholders and other general business needs. We use cash to acquire our target investments, repay principal and interest on our borrowings, make distributions to our stockholders and fund our operations. Our primary sources of cash consist of approved but unused borrowing capacity under our financing sources,facilities, the net proceeds of future equity and debt offerings, payments of principal, including loan repayments and prepayments, loan sales, interest we receive on our portfolio of assets and cash generated from our operating results.
We continue to monitor the COVID-19 pandemic and its impact on us, our borrowers, our sponsors and their properties serving as collateral on our loans, our financing sources and the overall economy. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences continue to be highly uncertain, rapidly changing and challenging to predict, the pandemic’s impact on our operations and liquidity remains uncertain and difficult to predict.
Other than capital markets activities, loan repayments and prepayments typically comprise our largest source of incremental liquidity. As a result of the COVID-19 pandemic and its impact on the capital markets and overall economy, we currently anticipate the pace of loan repayments and prepayments to slow meaningfully.
We expect that the impact of the COVID-19 pandemic will likely continue to decrease our cash flow from operations as we seek to enter into loan modifications on certain of our loans permitting interest payments to be deferred and/or capitalized, and as we repay borrowings under our secured financing facilities. In addition, we are able to generate incremental liquidity through the reinvestment provisions of the CLO that we closed on in 2019, the FL2 CLO, which allows us to reinvest certain proceeds generated from repayments or prepayments of loans financed through the FL2 CLO by either increasing the principal amount of existing CLO collateral assets or acquiring additional qualified collateral assets to maintain the aggregate amount of collateral assets in the CLO and the related financing outstanding. Because of the COVID-19 pandemic, the pace of any such repayments and prepayments may meaningfully slow.
We are focused on strengthening our balance sheet and enhancing our liquidity position to best position us to weather near-term market uncertainty, satisfy our loan future funding and financing obligations and to potentially make opportunistic new investments, which we expect will cause us to take, and in some instances has already caused us to take, some or all of the following actions: raise capital from offerings of securities, on a public or private basis, borrow additional capital, post additional capital, sell assets and/or change our dividend policy, which we will continue to evaluate in respect of future quarters based upon customary considerations, including market conditions and distribution requirements to maintain our REIT status.
In the future, we may also use other additional sources of financing to fund the origination or acquisition of our target investments, including other financing facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized and may involve one or more lenders. We expect that these facilities will typically have maturities ranging from two to five years and may accrue interest at either fixed or floating rates. We may also finance our business through the non-recourse sale of senior loan interests. There can be no assurance that we will be able to consummate any such financing or that they will be on commercially reasonable terms.
We may also seek to raise further equity capital and issue additional debt securities in order to fund our future investments. We may also seek to enhance the returns on our commercial real estate loan portfolio through additional CLOs or other securitizations, if available.
On November 21, 2018, we entered into
We are party to an equity distribution agreement under which we may sell up to an aggregate of 8,000,000 shares of our common stock from time to time in any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 under the Securities Act of 1933, as amended, or Securities Act. As of SeptemberJune 30, 2019,2020, 3,242,364 shares of common stock had been sold under the equity distribution agreement for total accumulated net proceeds of approximately $61.2 million, of which 3,077,424million. No shares were sold for total proceeds of $58.1 million during the ninesix months ended SeptemberJune 30, 2019. Additionally, we received a base management fee reimbursement from our Manager of $0.1 million for stock sold under the equity distribution agreement during the nine months ended September 30, 2019.2020.
As of SeptemberJune 30, 2019,2020, we held $137.4$56.0 million in cash and cash equivalents available to support our operations; $4.0$4.3 billion of loans held-for-investment, AFS securities and HTM securities; and $3.2$3.4 billion of outstanding debt in the form of repurchase agreements, securitized debt obligations, asset-specific financings, revolving credit facilities securitized debt obligations and long-term unsecured convertible senior notes. From March 31, 2020 to June 30, 2019 to September 30, 2019,2020, our debt-to-equity ratio, defined as total debt, net of cash, divided by equity, increased from 2.6:1.0 to 3.0:1.0 predominantly driven by increased financings on originations. From December 31, 2018 to September 30, 2019, our debt-to-equity ratio increased from 2.9:1.0 to 3.0:1.0 predominantly driven by increased financings on originations, offset by an increase in equity as a result of common stock issuances.remained consistent at 3.5:1.0. To that end, subject to maintaining our qualification as a REIT and our exclusion from registration under the Investment Company Act, we intend to use borrowings to fund the origination or acquisition of our target investments. Given current market conditions and our focus on senior floating-rate mortgage loans, we currently expect that such leverage will not significantly exceed, on a debt-to-equity basis, a 3.5-to-1 ratio on a company basis.basis, however, our leverage may vary depending on market conditions and any steps we may take to strengthen our balance sheet and enhance our liquidity position. The amount of leverage we deploy for our target investments depends upon our assessment of a variety of factors, which may include the anticipated liquidity and price volatility of the investments in our portfolio, the potential for losses in our portfolio, the gap between the duration of our assets and liabilities, including hedges, the availability and cost of financing the investments, our opinion of the creditworthiness of our financing counterparties, the health of the U.S. economy and commercial real estate financing markets, our outlook for the level and volatility of interest rates, the slope of the yield curve, the credit quality of our investments, the collateral underlying our investments and our outlook for investment spreads relative to LIBOR.
Our primary sources of liquidity include cash and cash equivalents. As of SeptemberJune 30, 2019,2020, we held approximately $137.4$56.0 million in cash and cash equivalents. PotentialA potential additional sourcessource of liquidity may be using unused borrowing capacity on our uncommitted financing facilities to finance unpledged commercial real estate loans held-for-investment. Obtainingheld-for-investment and unpledged funded loan commitments on our existing loans held-for-investment that are pledged on such facilities. Given the uncommitted nature of such financing facilities, obtaining liquidity on such unpledged loans and unpledged funded loan commitments is at thevarying degrees of discretion of our lending counterparties and may not be available to us when desired. Generally, unused borrowing capacity may be the result of our election not to utilize certain financing, as well as delays in the timing in which funding is provided for a specific investment. We monitor and forecast our available, or excess, liquidity on a daily basis. If borrowing rates and/or collateral requirements change in the near term, we believe we are subject to less earnings volatility than a more leveraged organization.
During the ninesix months ended SeptemberJune 30, 2019,2020, we did not experience any material restrictions to our funding sources. We expect ongoing sources of financing to be primarily consist of repurchase agreements, asset-specific financings, revolving credit facilities, securitizations, convertible notes, issuance of common stock, potential additional securitizations and similar financing arrangements. We will continue to explore other types of funding facilities to further diversify our financing sources. We plan to finance our assets with a moderate amount of leverage, the level of which may vary based upon the particular characteristics of our portfolio and market conditions.
As of SeptemberJune 30, 2019,2020, we had repurchase agreements in place with five counterparties (lenders), an asset-specific financing facility with one counterparty and a revolving credit facility with one counterparty to finance loans held-for-investment. We also had twoone other direct repurchase agreementsagreement in place to finance our CMBS. We continue to evaluate additional counterparties to manage and reduce counterparty risk. Under our repurchase agreements, we are required to pledge additional cash as collateral to our lenders when the estimated fair value of the existing pledged collateral under such agreements declines and such lenders, through a margin call, demand additional collateral. Such counterparties may make margin calls because of a perceived decline in the value of our assets collateralizing the given secured financing arrangement due to a credit event, or under a limited number of our repurchase agreements, market events, depending on the agreement.events. To cover a margin call, we may pledge additional cash.transfer cash to such counterparty. At maturity, any cash on deposit as collateral is generally applied against the repurchase agreement balance, thereby reducing the amount borrowed. Should the value of our assets suddenly decrease, significant margin calls on our repurchase agreements could result, causing an adverse change in our liquidity position.
We are in frequent, constructive dialogue with our secured credit facilities counterparties regarding our management of their collateral assets in light of the impacts of the COVID-19 pandemic. We have reduced the advance rate on certain assets within these facilities by transferring cash and/or additional unencumbered assets to such counterparties, thereby reducing the amount we are able to borrow against such assets and mitigating risks associated with future margin calls. There can be no assurance that we have adequate capacity to satisfy any potential margin call or that we would be able to enter into amendments to our agreements that prevent a foreclosure on any margin call.
An overview of our facilities that provide short- and long-term financing for our loans held-for-investment is presented in the table below:
| | | | September 30, 2019 | | June 30, 2020 | |
| (in thousands) | Maturity Date (1) | | Committed | | Amount Outstanding | | Unused Capacity | | Total Capacity | (in thousands) | Maturity Date (1) | | Committed | | Amount Outstanding | | Unused Capacity | | Total Capacity | |
| Repurchase facilities: | | | | | | | Repurchase facilities: | | | | | | | | | | |
| Morgan Stanley Bank | June 28, 2021 | | No | | $ | 600,000 |
| | $ | — |
| | $ | 600,000 |
| Morgan Stanley Bank | June 28, 2021 | | No | | $ | 535,482 | | | $ | 64,518 | | | $ | 600,000 | | |
| Goldman Sachs Bank | May 2, 2020 | | No | | $ | 262,754 |
| | $ | 237,246 |
| | $ | 500,000 |
| Goldman Sachs Bank | May 2, 2021 | | No | | $ | 468,741 | | | $ | 31,259 | | | $ | 500,000 | | |
JPMorgan Chase Bank (2) | June 28, 2022 | | No | | $ | 362,772 |
| | $ | 62,228 |
| | $ | 425,000 |
| |
| JPMorgan Chase Bank | | JPMorgan Chase Bank | June 28, 2022 | | No | | $ | 421,626 | | | $ | 28,374 | | | $ | 450,000 | | |
| Citibank | July 15, 2022 | | No | | $ | 291,344 |
| | $ | 108,656 |
| | $ | 400,000 |
| Citibank | January 9, 2023 | | No | | $ | 416,688 | | | $ | 83,312 | | | $ | 500,000 | | |
Wells Fargo Bank (3) | June 28, 2021 | | No | | $ | 186,378 |
| | $ | 13,622 |
| | $ | 200,000 |
| |
Wells Fargo Bank (2) | | Wells Fargo Bank (2) | June 28, 2021 | | No | | $ | 176,526 | | | $ | 98,474 | | | $ | 275,000 | | |
| Asset-specific financings: | | | | | | | Asset-specific financings: | | |
| Canadian Imperial Bank of Commerce | Various | | No | | $ | 114,080 |
| | $ | 35,920 |
| | $ | 150,000 |
| Canadian Imperial Bank of Commerce | Various | | No | | $ | 121,242 | | | $ | 28,758 | | | $ | 150,000 | | |
| Revolving credit facilities: | | | | | | | Revolving credit facilities: | | |
Citibank (4) | July 26, 2021 | | No | | $ | — |
| | $ | 110,000 |
| | $ | 110,000 |
| |
Citibank (3) | | Citibank (3) | July 26, 2021 | | No | | $ | 12,589 | | | $ | 62,411 | | | $ | 75,000 | | |
____________________
| |
(1) | The facilities are set to mature on the stated maturity date, unless extended pursuant to their terms. |
| |
(2) | We retain an option to increase the maximum facility capacity amount up to $500 million, subject to customary terms and conditions. |
| |
(3) | We retain an option to increase the maximum facility capacity amount up to $350 million, subject to customary terms and conditions. |
| |
(4) | As of September 30, 2019, the maximum facility capacity amount included a temporary upsize of $35 million. We retain an option to increase the maximum facility capacity amount up to $150 million, subject to customary terms and conditions. |
(1)The facilities are set to mature on the stated maturity date, unless extended pursuant to their terms.
(2)We retain an option to increase the maximum facility capacity amount up to $350 million, subject to customary terms and conditions.
(3)We retain an option to increase the maximum facility capacity amount up to $150 million, subject to customary terms and conditions.
We are subject to a variety of financial covenants under our lending agreements. The following represent the most restrictive financial covenants across the agreements as of SeptemberJune 30, 2019:2020:
•Unrestricted cash cannot be less than the greater of $30.0 million and 5.0% of recourse indebtedness. As of SeptemberJune 30, 2019,2020, our unrestricted cash, as defined, was $137.4$56.0 million, while 5.0% of our recourse indebtedness, as defined, was $40.1$43.9 million.
Tangible net worth must be greater than the sum of 75.0% of tangible net worth as of June 28, 201730, 2020 and 75.0% of net cash proceeds of additional equity issuances, which calculates to $782.3 million. As of SeptemberJune 30, 2019,2020, our tangible net worth, as defined, was $1.0 billion.
•Target asset leverage ratio cannot exceed 75.0%77.5% and our total leverage ratio cannot exceed 80.0%. As of SeptemberJune 30, 2019,2020, our target asset leverage ratio, as defined, was 74.9%73.0% and our total leverage ratio, as defined, was 76.2%78.2%.
•Minimum interest coverage must be greater than 1.5:1.0. As of SeptemberJune 30, 2019,2020, our minimum interest coverage, as defined, was 1.7:2.3:1.0.
We may also be subject to additional financial covenants in connection with various other agreements we enter into in the normal course of our business. We intend to continue to operate in a manner which complies with all of our financial covenants.
The following table summarizes assets at carrying values that were pledged or restricted as collateral for the future payment obligations of repurchase agreements, asset-specific financings, revolving credit facilities and securitized debt obligations as of SeptemberJune 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | |
| (in thousands) | June 30,
2020 | | December 31,
2019 |
| Loans held-for-investment | $ | 4,242,340 | | | $ | 4,081,155 | |
| Available-for-sale securities, at fair value | 12,542 | | | 12,830 | |
| Held-to-maturity securities | 10,788 | | | 18,076 | |
| | | |
| Restricted cash | — | | | — | |
| | | |
| Total | $ | 4,265,670 | | | $ | 4,112,061 | |
|
| | | | | | | |
| (in thousands) | September 30,
2019 | | December 31,
2018 |
| Loans held-for-investment | $ | 3,730,082 |
| | $ | 2,935,757 |
|
| Available-for-sale securities, at fair value | 12,830 |
| | 12,606 |
|
| Held-to-maturity securities | 19,594 |
| | 26,696 |
|
| Restricted cash | 1,549 |
| | 2,922 |
|
| Total | $ | 3,764,055 |
| | $ | 2,977,981 |
|
Although we generally intend to hold our target assetsinvestments as long-term investments, we may sell certain of our assets in order to manage our liquidity needs, to meet other operating objectives and to adapt to market conditions. Commercial real estate loans are subject to longer trade timelines than securities and, as a result, market conditions could significantly and adversely affect the liquidity of our assets. Any illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises. Our ability to quickly sell certain assets may be limited by delays due to the time period needed for negotiating transaction documents and conducting diligence. Consequently, even if we identify a buyer for our commercial real estate loans, there is no assurance that we would be able to quickly sell such assets if the need or desire arises. Additionally, we cannot assure you that the recent economic impact of the COVID-19 pandemic would not make it more difficult to sell certain of our assets or that it would not have a material impact on the value of our assets.
In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we previously recorded our assets. Assets that are illiquid are more difficult to finance, and to the extent that we use leverage to finance assets that become illiquid, we may lose that leverage or have it reduced. Assets tend to become less liquid during times of financial stress, which is often the time that liquidity is most needed. As a result, our ability to sell assets or vary our portfolio in response to changes in economic and other conditions may be limited by liquidity constraints, which could adversely affect our results of operations and financial condition.
We cannot predict the timing and impact of future sales of our assets, if any. BecauseSince many of our assets are financed with repurchase agreements, asset-specific financings and revolving credit facilities, a significant portion of the proceeds from sales of our assets, (if any), prepayments and scheduled amortization would be used to repay balances under these financing sources.
The following table provides the maturities of our repurchase agreements, asset-specific financings, revolving credit facilities, securitized debt obligations and convertible senior notes, net of deferred debt issuance costs, as of SeptemberJune 30, 20192020 and December 31, 2018:2019:
|
| | | | | | | |
| (in thousands) | September 30,
2019 | | December 31,
2018 |
| Within 30 days | $ | 14,780 |
| | $ | — |
|
| 30 to 59 days | 73,999 |
| | 25,854 |
|
| 60 to 89 days | — |
| | — |
|
| 90 to 119 days | — |
| | 36,371 |
|
| 120 to 364 days | 1,031,340 |
| | 874,317 |
|
| One to three years | 1,820,242 |
| | 1,293,264 |
|
| Three to five years | 292,692 |
| | 268,138 |
|
| Five to ten years | — |
| | — |
|
| Ten years and over | — |
| | — |
|
| Total | $ | 3,233,053 |
| | $ | 2,497,944 |
|
| | | | | | | | | | | |
| (in thousands) | June 30,
2020 | | December 31,
2019 |
| Within one year | $ | 1,669,695 | | | $ | 709,363 | |
| One to three years | 1,620,112 | | | 2,533,995 | |
| Three to five years | 128,898 | | | 149,814 | |
| Five years and over | — | | | — | |
| Total | $ | 3,418,705 | | | $ | 3,393,172 | |
From March 31, 2020 to June 30, 2019 to September 30, 2019,2020, our restricted and unrestricted cash and cash equivalents balance increaseddecreased approximately $137.2$48.4 million to $306.2$59.5 million. The cash movements can be summarized by the following:
| |
• | Cash flows from operating activities. For the three months ended September 30, 2019, operating activities increased our cash balances by approximately $22.8•Cash flows from operating activities. For the three months ended June 30, 2020, operating activities increased our cash balances by approximately $71.6 million, primarily driven by our financial results for the quarter. |
| |
• | Cash flows from investing activities. For the three months ended September 30, 2019, investing activities decreased our cash balances by approximately $361.4 million, primarily driven by originations of loans held-for-investment, offset by repayments of loans held-for-investment and held-to-maturity securities.
|
| |
• | Cash flows from financing activities. For the three months ended September 30, 2019, financing activities increased our cash balance by approximately $475.8 million, primarily driven by net proceeds from repurchase agreements and asset-specific financings and offset by dividends paid.
|
•Cash flows from investing activities. For the three months ended June 30, 2020, investing activities decreased our cash balances by approximately $55.2 million, primarily driven by additional fundings provided on existing loan commitments, partially offset by repayments of loans held-for-investment and sales of loans held-for-sale. •Cash flows from financing activities. For the three months ended June 30, 2020, financing activities decreased our cash balance by approximately $64.8 million, primarily driven by net repayments of repurchase agreements and revolving credit facilities.
Off-Balance Sheet Arrangements
We have not participated in transactions that create relationships with unconsolidated entities or financial partnerships which would have been established for the purpose of facilitating off-balance sheet arrangements. Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment or intent to provide funding to any such entities. However, as of SeptemberJune 30, 2019,2020, we had unfunded commitments on commercial real estate loans held-for-investment of $667.0$677.7 million to be used for future fundings to borrowers, generally to finance lease-related or capital expenditures.
Dividends
In March 2020, we temporarily suspended the payment of dividends of our common stock. We will continue to evaluate our dividend policy in respect to future quarters. Depending on overall market conditions and our overall financial condition and performance, we intend to makereinstate regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT annually distribute at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its REIT taxable income, including capital gains. We intend to pay dividends to our stockholders in a manner intended to satisfy the REIT distribution requirements and to avoid both corporate income tax and excise tax. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our secured funding facilities, other lending facilities, repurchase agreements and other debt payable. If our cash available for distribution is less than our required distribution for REIT qualification purposes, we could be required to sell investments or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.
Inflation
Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our financial statements are prepared in accordance with U.S. GAAP and our distributions will be determined by our board of directors consistent with our obligation to distribute to our stockholders at least 90% of our REIT taxable income on an annual basis in order to maintain our REIT qualification; in each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We seek to manage our risks related to the credit quality of our investments, interest rates, liquidity and market value while, at the same time, seeking to generate attractive risk-adjusted returns to our stockholders. While we are exposed to certain types of market risk in our business, we seek to actively manage them and rely onusing our Manager’s sophisticated risk management infrastructure and philosophy centered around quantifying and measuring various market risks on a continuous basis. We seek to be fairly compensated through the returns we earn on our investments for taking those risks and focus on maintaining liquidity and capital levels consistent with the risks to which we are exposed. However, many of those risks have been magnified by the continuing economic disruption and capital markets volatility resulting from the COVID-19 pandemic.
Recent Market Conditions
Due to the current COVID-19 pandemic in the United States and globally, most of our borrowers, sponsors, their tenants, the properties serving as collateral on our loan investments, and the economy as a whole have been, and will likely continue to be, adversely affected. See “COVID-19 Pandemic” in Part I, Item 2 of this Quarterly Report on Form 10-Q for further discussion of the impact of the COVID-19 pandemic on market conditions.
Credit Risk
We are subject to varying degrees of credit risk in connection with holding a portfolio of our target investments. The performance and value of our investments depend upon the sponsors’ ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. We seek to manage credit risk by performing deep fundamental credit analysis of our potential investments. Credit risk is also addressed through our on-going review, and our investment portfolio is monitored for variance from expected defaults, severities, losses and cash flow on a monthly basis, with more intense analysis and oversight done on a quarterly basis.
Interest Rate Risk
Generally, the composition of our investments is such that rising interest rates increase our net income, while declining interest rates will decrease net income.income, subject to the impact of contractual interest rate floors. As of SeptemberJune 30, 2019,2020, approximately 98.4%98.5% of our portfolio by carrying value earned a floating rate of interest. The remaining approximately 1.6%1.5% of our portfolio earnsearned a fixed rate of interest. If interest rates were to decline, the value of these fixed-rate investments may increase and if interest rates were to increase, the value of these fixed-rate investments may fall; however, the interest income generated by these investments would not be affected by market interest rate fluctuations. The interest rates we pay under our current repurchase agreements and securitized debt obligations are primarily floating rate.rate, subject to contractual interest rate floors. Accordingly, our interest expense generally increases as interest rates increase and decreases as interest rates decrease.
Our analysis of risks is based on our experience, estimates, models and assumptions. These analyses rely on models which utilize estimates of fair value and interest rate sensitivity. Actual economic conditions or our implementation of decisions may produce results that differ significantly from the estimates and assumptions used in our models.
The information presented in the following interest rate sensitivity table projects the potential impact of sudden parallel changes in interest rates on our financial results and financial condition over the next 12 months, based on our interest sensitive financial instruments at SeptemberJune 30, 2019.2020. All changes in value are measured as the change from our SeptemberJune 30, 20192020 financial position. All projected changes in annualized net interest income are measured as the change from our projected annualized net interest income based off current performance returns.
|
| | | | | | | | | | | | | | | |
| | Changes in Interest Rates |
| (in thousands) | -100 bps | | -50 bps | | +50 bps | | +100 bps |
| Change in value of financial position: | | | | | | | |
| Loans held-for-investment | $ | 955 |
| | $ | 603 |
| | $ | (805 | ) | | $ | (1,611 | ) |
| Available-for-sale securities | 5 |
| | 3 |
| | (3 | ) | | (5 | ) |
| Held-to-maturity securities | 8 |
| | 4 |
| | (4 | ) | | (8 | ) |
| Repurchase agreements | (737 | ) | | (368 | ) | | 368 |
| | 737 |
|
| Securitized debt obligations | (472 | ) | | (236 | ) | | 236 |
| | 472 |
|
| Asset-specific financings | (48 | ) | | (24 | ) | | 24 |
| | 48 |
|
| Convertible senior notes | (8,955 | ) | | (4,431 | ) | | 4,339 |
| | 8,589 |
|
| Total net assets | $ | (9,244 | ) | | $ | (4,449 | ) | | $ | 4,155 |
| | $ | 8,222 |
|
| | | | | | | | |
| | -100 bps | | -50 bps | | +50 bps | | +100 bps |
| Change in annualized net interest income: | $ | 6,694 |
| | $ | 184 |
| | $ | 4,582 |
| | $ | 9,163 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Changes in Interest Rates | | | | | | |
| (in thousands) | -100 bps | | -50 bps | | +50 bps | | +100 bps |
| Change in value of financial position: | | | | | | | |
| Loans held-for-investment | $ | 5 | | | $ | 5 | | | $ | (51) | | | $ | (170) | |
| Available-for-sale securities | 1 | | | 1 | | | (3) | | | (5) | |
| Held-to-maturity securities | 1 | | | 1 | | | (2) | | | (4) | |
| Repurchase agreements | (106) | | | (106) | | | 423 | | | 846 | |
| Securitized debt obligations | (80) | | | (80) | | | 206 | | | 412 | |
| Asset-specific financings | (6) | | | (6) | | | 17 | | | 34 | |
| Revolving credit facilities | (1) | | | (1) | | | 3 | | | 5 | |
| Convertible senior notes | (4,814) | | | (2,382) | | | 2,358 | | | 4,667 | |
| Total net assets | $ | (5,000) | | | $ | (2,568) | | | $ | 2,951 | | | $ | 5,785 | |
| | | | | | | |
| -100 bps | | -50 bps | | +50 bps | | +100 bps |
| Change in annualized net interest income: | $ | 4,223 | | | $ | 4,223 | | | $ | (12,699) | | | $ | (24,615) | |
The interest rate sensitivity table quantifies the potential changes in annualized net interest income and portfolio value, should interest rates immediately change. The interest rate sensitivity table presents the estimated impact of interest rates instantaneously rising 50 and 100 basis points, and falling 50 and 100 basis points. The cash flows associated with the portfolio for each rate change are calculated based on assumptions, including yield on future originations and acquisitions, slope of the yield curve and size of the portfolio. Assumptions made on the interest rate sensitive liabilities include anticipated interest rates, collateral requirements as a percentage of borrowings and amount and term of borrowing.
Certain assumptions have been made in connection with the calculation of the information set forth in the foregoing interest rate sensitivity table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes. The base interest rate scenario assumes interest rates at SeptemberJune 30, 2019.2020. The analysis utilizes assumptions and estimates based on management’s judgment and experience. Furthermore, while we generally expect to retain such assets and the associated interest rate risk to maturity, future originations, acquisitions and sales of assets could materially change our interest rate risk profile.
The information set forth in the interest rate sensitivity table above and all related disclosures constitutes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual results could differ significantly from those estimated in the foregoing interest rate sensitivity table.
LIBOR is expected to be discontinued after 2021. As of June 30, 2020, approximately 98.5% of our loans by principal balance/carrying value earned a floating rate of interest indexed to LIBOR, and 100.0% of our outstanding borrowings (excluding convertible notes) bear interest indexed to LIBOR. All of these arrangements provide procedures for determining an alternative base rate in the event that LIBOR is discontinued. Regardless, there can be no assurances as to what alternative base rates may be and whether such base rate will be more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and work with our lenders and borrowers to minimize the impact of any LIBOR transition on our financial condition and results of operations, but can provide no assurances regarding the impact of the discontinuation of LIBOR.
Borrower Performance
In addition to the risks related to fluctuations in cash flows and investment values associated with movements in interest rates, there is also the risk of borrower non-performance on our floating-rate investments. If interest rates were to significantly rise, it is possible that the increased debt service costs may negatively impact operating cash flows on properties securing our commercial real estate loan investments, resulting in potential non-performance of our borrowers.borrowers or, in severe cases, default. This risk is partially mitigated by various facts we consider during our rigorous underwriting and loan structuring process, which in certain cases include a requirement for our borrower to purchase an interest rate cap contract. As of SeptemberJune 30, 2019,2020, none of the commercial real estate loans in our portfolio were non-performing.
Capital Markets Risk
As a REIT, we are required to distribute a significant portion of our taxable income annually, which constrains our ability to accumulate significant operating cash flow and therefore requires us to utilize capital markets, both debt and equity, to finance our business. As a result, we are exposed to risks related to the equity capital markets and our related ability to raise capital through the issuance of our common stock or other equity instruments. We are also exposed to risks related to the debt capital markets, and our related ability to finance our business through borrowings under credit facilities or other debt instruments, such as securitizations or unsecured debt. We seek to mitigate these risks by monitoring the debt and equity capital markets to inform our decisions on the amount, timing and terms of capital we raise.
Real Estate Risk
Our business strategy focuses on commercial real estate related debt investments. As a result, we will be exposed to the risks generally associated with the commercial real estate market, including occupancy rates, capitalization rates, absorption rates and other macroeconomic factors beyond our control.control, including, but not limited to, the impacts of the COVID-19 pandemic discussed above.
Additionally, commercial real estate debt investments may be affected by a number of factors, including, national, regional and local economic and real estate conditions, changes in business trends of specific industry segments, property construction characteristics, demographic factors and changes to building codes. Any combination of these factors may affect the value of real estate collateral for investments within our investment portfolio and the potential proceeds available to a borrower to repay the underlying loans, which could cause us to suffer losses. We seek to manage these risks through our rigorous and fundamentally driven underwriting and investment management processes.
Liquidity Risk
Our liquidity risk is principally associated with our financing of longer-maturity investments with shorter-term borrowings in the form of repurchase agreements, asset-specific financings and revolving credit facilities. Should the value of our investments pledged as collateral on our repurchase agreements significantly decrease, including, but not limited to, as a result of the impacts of the COVID-19 pandemic discussed above, our lenders may exercise their margin call rights, causing an adverse change in our liquidity position. If we fail to resolve such margin calls when due, the lenders may exercise their rights under such repurchase agreements, including requiring payment by us of our aggregate outstanding financing obligations and / or taking ownership of the loans securing such obligations, potentially of an unfinanced basis, thereby reducing our available liquidity. Additionally, if one or more of our repurchase agreement, andasset-specific financing or revolving credit facility counterparties chose not to provide ongoing funding, including with respect to future funding obligations on existing loans financed with such counterparties, which such risks are increased as a result of the COVID-19 pandemic and its effects on the global and U.S. economies and commercial real estate, our ability to finance our investments and related future funding obligations would decline or exist at possibly less advantageous terms. As such,
Extension Risk
We manage our assets based on a variety of assumptions and estimates, including among others, assumptions regarding the rate at which the borrowers will prepay our loans or extend. If prepayment rates decrease in a rising interest rate environment or extension options are exercised, the life of our loan investments could extend beyond the term of the secured financing agreements. The macroeconomic, commercial real estate and capital markets disruptions caused by the COVID-19 pandemic have and will likely continue to result in a decrease in prepayment rates and an increase in the number of our borrowers who
exercise loan extension options. This could have a negative impact on our results of operations. In some situations, we cannot assure you that we will alwaysmay be ableforced to roll over our repurchase agreements or other sources of financingsell assets to maintain adequate liquidity, which requirecould cause us to renew them on a periodic basis.incur losses.
Risk Management
To the extent consistent with maintaining our REIT qualification, we seek to manage risk exposure by closely monitoring our portfolio and actively managing the financing, interest rate, credit and other risks associated with holding a portfolio of our target investments. Generally, with the guidance and experience of our Manager:
•we manage our portfolio with focus on diligent, investment-specific market review, enforcement of loan and security rights and timely execution of disposition strategies;
•we actively employ portfolio-wide and investment-specific risk measurement and management processes in our daily operations, including utilizing our Manager’s risk management tools; and
•we seek to manage credit risk through our rigorous underwriting due diligence process prior to origination or acquisition of our target investments and through the use of non-recourse financing, when and where available and appropriate.
Item 4. Controls and Procedures
A review and evaluation was performed by our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that review and evaluation, the CEO and CFO have concluded that our current disclosure controls and procedures, as designed and implemented, were effective as of the end of the period covered by this Quarterly Report on FromForm 10-Q. Although our CEO and CFO have determined our disclosure controls and procedures were effective at the end of the period covered by this Quarterly Report on Form 10-Q, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the reports we submit under the Exchange Act.
There was no change in our internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 20192020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we may be involved in various legal claims and/or administrative proceedings that arise in the ordinary course of our business. As
In connection with our previously announced process with our Manager to internalize our management function, we and our Manager have entered into a confidential, binding arbitration to determine any amounts payable by us to our Manager in consideration of our Manager’s agreement to terminate the management agreement and our Manager’s undertaking of other obligations pursuant to an internalization agreement to be entered into between us and our Manager following the conclusion of the datearbitration process. The arbitral hearing has been delayed based on the COVID-19 pandemic, and we currently expect that the hearing will take place during the third or fourth quarter of 2020. Except as described in this filing,paragraph, we are not party toaware of any litigation orother legal proceedings or to the best of our knowledge, any threatened litigation or legal proceedings, which, in our opinion,claims that we believe may have, individually or in the aggregate, would havetaken together, a material adverse effect on our results of operations or financial condition.
Item 1A. Risk Factors
There have been no material changes toFor information regarding factors that could affect our results of operations, financial condition and liquidity, see the risk factors set forth under the heading “Itemdiscussed in Part I, Item 1A. Risk“Risk Factors” ofin our Annual Report on Form 10-K for the year ended December 31, 2018,2019, or Annual Report.
In light of developments relating to the Form 10-K. The materializationCOVID-19 pandemic occurring subsequent to the filing of any risks and uncertainties identifiedour Annual Report, we are supplementing the risk factors discussed in our Forward-Looking StatementsAnnual Report with the following risk factor, which should be read in conjunction with the risk factors contained in this Quarterly Report on Form 10-Q, together with those previously disclosedour Annual Report.
The ongoing COVID-19 pandemic has caused severe disruptions in the Form 10-K, United States and global economy and to our business, and may continue to have an adverse impact on our performance and results of operations.
Since the first quarter of 2020, the global impact of the COVID-19 pandemic has been rapidly evolving, and many countries have reacted by instituting quarantines and restrictions on travel, closing financial markets and/or those thatrestricting trading and limiting operations of non-essential businesses. Such measures are presently unforeseendisrupting global supply chains, significantly increasing rates of unemployment and adversely impacting many industries, including the commercial finance and real estate markets in which we compete. The outbreak could result in significanthave a continued adverse effectsimpact on economic and market conditions and trigger a period of global economic slowdown.
The outbreak of COVID-19 has had, and may continue to have an adverse impact on our financial condition, liquidity and results of operations and the market price of our common stock, among other things. We expect that these impacts are likely to continue to some extent as the outbreak persists and potentially even after the outbreak subsides. In particular, our ability to operate successfully could be adversely impacted due to the following:
•The COVID-19 pandemic has had a significant long-term impact on the broader economy and the commercial real estate market generally, which would negatively impact the value of the assets collateralizing our loans. Our portfolio includes loans collateralized by hotel, retail and other asset classes which have been significantly negatively impacted by the pandemic, particularly due to government-mandated closures and travel restrictions. While we believe the principal amount of our loans are generally adequately protected by the value of the underlying collateral, there can be no assurance that we will realize the entire principal value of certain investments.
•We are actively engaged in discussions with our borrowers, some of whom have indicated that, due to the impact of the COVID-19 pandemic, they have been unable to timely execute their business plans, have had to temporarily close their businesses or have experienced other negative business consequences. As a result, some borrowers have requested, and in certain instances we have agreed to, near-term loan modifications, including repurposing of funds in certain reserve accounts, temporary deferrals of interest or performance tests, certain covenant waivers on loans collateralized by properties impacted by the COVID-19 pandemic. Due to the continuing impact of the COVID-19 pandemic, we anticipate additional loan modifications requests from our borrowers and potentially instances of default or foreclosure on assets underlying our loans, which would adversely affect the credit profile of our assets and our results of operations and financial condition.
•We have repurchase agreements with numerous lenders and are actively engaged in discussions with them, particularly with respect to the effects of the COVID-19 pandemic, around the value of pledged assets as defined in such agreements, our ability to deleverage or finance our future loan funding commitments, the application of certain provisions of such agreements to these circumstances and other structural elements under the agreements. If we do not have sufficient liquidity to make required payments on a timely basis, we would likely experience defaults and potential loss of assets to the lenders unless we are able to raise the funds from alternative sources, including by selling or financing assets or raising capital, or liquidity sources, each of which we may be required to do under adverse market conditions or at an inopportune time or on unfavorable terms, or may be unable to do at all. A default under one agreement may trigger cross-defaults under other agreements. Continued market volatility may further limit our
ability to access liquidity sources under favorable terms, or at all. Pledging additional collateral or otherwise paying down facilities to satisfy our lenders and avoid potential margin calls and loan defaults would reduce our cash flows. See Item 2, “available to meet subsequent margin calls and/or future funding requests, as well as to make other higher yielding investments, thereby decreasing our liquidity, return on equity, available cash, net income and ability to implement our investment strategy. We also have covenants in some of our debt agreements that require us to maintain a minimum amount of cash, which could impact our ability to satisfy margin calls. If we cannot meet lender requirements related to margin calls or other terms of our credit agreements, the lender or counterparty could accelerate our indebtedness, increase the interest rate on advanced funds our limit our ability to borrow additional funds, which would materially and adversely affect our financial condition and ability to implement our investment strategy.
•Management’s DiscussionBecause of the impacts of the COVID-19 pandemic on global economies and AnalysisU.S. commercial real estate, we likely will experience reduced availability of Financial Conditionliquidity sources, but our requirements for liquidity, including future loan funding obligations and Resultspotential margin calls, likely will not be commensurately reduced. If we do not have funds available to meet our obligations, we would have to raise funds from alternative sources, which may be at unfavorable terms or may not be available to us. We expect that the financial impact of Operations - Forward-Looking Statementsthe COVID-19 pandemic will likely adversely affect our liquidity position and could limit our ability to grow our business and successfully execute our business strategy. In order to preserve and build our liquidity to weather near-term market uncertainty, satisfy our loan future funding and financing obligations and potentially make opportunistic new investments, we intend to take, and in some instances have taken, some or all of the following actions: raise capital from offerings of securities, borrow additional capital, sell assets and/or change our dividend practice. One or more of these conditions could increase our secured debt or be dilutive to our existing stockholders.
•”Interest rates and credit spreads have been significantly impacted since the outbreak of COVID-19. This can increase the volatility of the fair value of our floating-rate loans and also the interest obligations on our floating-rate debt and fair value of our fixed-rate liabilities, which could increase our interest expense.
•An extended period of remote working by our personnel could strain our technology resources and introduce operational risks, including heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic.
In addition to the foregoing, we have experienced, and may continue to experience, other negative impacts to our business as a result of the COVID-19 pandemic that further heighten the impact of other risks described in this Quarterlyour Annual Report on Form 10-Q.10-K for the year ended December 31, 2019, including, but not limited to:
•lack of liquidity of our investments;
•risks associated with loans on properties in transition, renovation, restoration or construction;
•impairment of our investments and harm to our operations from a prolonged economic slowdown, a lengthy or severe recession or declining real estate values;
•the concentration of our loans and investments in terms of geography, asset types and sponsors;
•losses resulting from foreclosing on certain of the loans we originate or acquire;
•downgrades in credit ratings assigned to our investments;
•investments in non-investment grade rated commercial real estate loans or securities;
•the difficulty of estimating provisions for loan losses;
•our debt;
•risks associated with non-recourse securitizations which we use to finance our loans and investments;
•losses arising from current and future guarantees of debt and contingent obligations of our subsidiaries;
•borrower and counterparty risks;
•if the market value or income potential of our assets decline, we may need to increase our real estate assets and income or liquidate our non-qualifying assets in order to maintain our REIT qualification or exclusion from the Investment Company Act;
•operational impacts on ourselves and our third-party service providers, including loan servicers and other service providers, such as trustees, appraisers and other due diligence vendors and document custodians, related to our investments in commercial real estate debt investments, as well as for general operating purposes;
•the availability of key personnel of the Manager and our service providers as they face changed circumstances and potential illness during the pandemic; and
•other risks described in our Annual Report as they may be amended by our periodic filings with the SEC.
The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions, and, as a result, continues to present material uncertainty and risk with respect to us and the performance of our investments. The full extent of the impact of COVID-19 will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related travel advisories, quarantines and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions and uncertainty with respect to the duration of the global economic slowdown, including the resulting impact on the value of our assets. COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas, present uncertainty and risk with respect to our performance, results of operations and ability to pay distributions.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits
A list of exhibits to this Quarterly Report on Form 10-Q is set forth below.
45
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| Exhibit Number | | Exhibit Index |
| 3.1 | | |
| 3.2 | | |
| 3.3 | | |
| 4.1 | | |
| 4.2 | | |
| 4.3 | | |
| 4.4 | | |
| 10.1 | | |
| 10.2 | | Amendment No. 5 to Master Repurchase Agreement and Securities Contract,Amendment No. 2 to Amended and Restated Guarantee Agreement, dated as of May 9, 2018,July 2, 2020, by and between Wells FargoGP Commercial JPM LLC and JPMorgan Chase Bank, National Association, and GP Commercial WF LLCacknowledged and agreed to by Granite Point Mortgage Trust Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on July 3, 2019)6, 2020). |
10.231.1 | | |
10.3 | | |
10.4 | | |
10.5 | | |
10.6 | | |
31.1 | | |
| 31.2 | | |
| 32.1 | | |
| 32.2 | | |
| 101 | | Financial statements from the Quarterly Report on Form 10-Q of Granite Point Mortgage Trust Inc. for the three months ended SeptemberJune 30, 2019,2020, filed with the SEC on November 5, 2019,August 10, 2020, formatted in Inline XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Statements of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to the Condensed Consolidated Financial Statements. (filed herewith) |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). (filed herewith) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | GRANITE POINT MORTGAGE TRUST INC. |
| Dated: | November 5, 2019August 10, 2020 | By: | /s/ John A. Taylor |
| | | John A. Taylor
President, Chief Executive Officer and Director
(Principal Executive Officer)
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| Dated: | November 5, 2019August 10, 2020 | By: | /s/ Marcin Urbaszek |
| | | Marcin Urbaszek
Chief Financial Officer
(Principal Accounting and Financial Officer)
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