GPMT - Earnings call transcript Q3 2019 | Granite Point Mortgage Trust Inc.

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Operator

Good morning. My name is Jacob, and I will be your conference facilitator. At this time, I would like to welcome everyone to Granite Point Mortgage Trust’s Third Quarter 2019 Financial Results Conference Call. All participants will be in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session.

now Relations conference for to Petta to like Investor with Granite would turn over the Chris I Point.

Chris Petta

XXXX Granite Thank a Thank our introductory my you morning our our Jack CIO; recap Marcin provide a our third are conditions. After discuss and our call of Alpart, Alpart our Urbaszek, you will third everyone. With quarter Point's CEO; for joining Jack and and pipeline; on and financials. Plust, summary discuss business activities from our Marcin Steve call this will comments, brief good the key financial market portfolio of results. morning our COO. our items and highlight President Steve will quarter and me Taylor, to Steve CFO; originations,

financial well The yesterday filed the today's associated tables Form our press XX-Q with release as were call and SEC. with as

like with of call. to review on our conjunction urge same to I the non-GAAP location. you If at website, being release you our in reconciliation information a provided on on have now our this are Relations in would or may the financial We this call the you that a be accessed GAAP measures. to also In is have them and find posted mention Investor sec.gov. section today's copy, may do webcast slides, which not of SEC's we our website website website and earnings in

forward-looking management remind the this and turn statements. that I conference Before call by include Jack, slides like over the during may supporting you would to remarks made I to call

imply such the or anticipate, any the differ statements SEC's and events words. you undertake to to uncertainties, our SEC, actual do to may materially We may views caution other website in use events on investors not urge unduly statements. or expect, and and estimate later Forward-looking filings of prove consider are typically at regarding believe the They any our expectations. which forward-looking forward-looking associated from correct be if on to future statements the them rely with not obtained sec.gov. We carefully risks We obligation results such risks inaccurate. and with described be as update words reflect

now over to call turn will I the Jack.

Jack Taylor

and call. everyone. for would you Thank you, Chris, XXXX We you quarter to all earnings welcome morning our good like thank third joining and

course have been the successfully on year, Over growing meaningfully business. the we strategy investment our our executing of while

year, the our about over our of million, strong team. experienced third capabilities Through originations senior loans, of highly the illustrate Our quarter first again, of over year. platform origination months $XXX nine the same of increase loan period and last of an $X.X direct the billion over new originated XX% we

forward of expect evidenced year our million our robust to continue of the by We of for $XXX as loans. over rest capital the deployment pipeline

our pace adjusted loan originations and increased, structuring maintained while of risk on we've underwriting attractive Although has credit returns. our generating emphasis

be would increase year-end, in senior which about Assuming loans record than track for closed of and all new pipeline originate XX% our XXXX. of on in represents directly volume to for originations business investments full a the by we $X more over an loan the are our our billion year,

in originations record commitments our with loan fundings third million. of existing combined over quarter the Our strong capital of resulted $XXX quarterly deployment

over $X.X billion of including of was the balance principal quarter and quarter. The increase a generated about another manageable That second combined of portfolio $XXX at XX% net about million future prepayments over funding commitments. billion or our $X strong quarter with portfolio our growth end outstanding

a underwriting portfolio. strong sponsors criteria, business remain deploying properties meeting We produces backed are our and plans and quality well We well ongoing with the of into on pleased diversified capital aggregate portfolio. quality by secured strength credit with stories our our credit the high which focused in of

During approximately another this risk the refinanced on par. the credit million rated previously asset. quality was four earlier our a loans loan had of repaid lender This quarter, reaffirming on at was one New third $XX with York views of that multifamily been our property in

other risk continue a We actively that tenet have our loan overall of credit our program of four. to and management Active we rated investments monitor approach the one monitoring is risk key asset to mitigation.

rates overall the that are negative relatively with have our performance financial on remained balance some months, in the will in Marcin fundamentals few interest short-term market cut in of last credit actions with Even in has general which estate over though preemptive had a the in along earnings our remains employment the quarter-over-quarter. overall We trends quarter. stable the the later set with to solid the the third real commercial This economic shifts sheet, temporary in describe significantly, which detail attractive. contributed more decline environment our market, a Fed a impact on believe along conditions

floors been loans offset LIBOR of the outset, from we partial short-term the incorporating our declining majority a On have rates. as to vast

investments However, portfolio LIBOR older is on portfolio with as short-term yield a rates vintage portion floors, disproportionate of which our lower significant impact resulted much in declined. our in a

As XX% portfolio floors of September that LIBOR less money. were than of in our had XX, the

average X.XX%. year for weighted months originations our nine first the have floor the LIBOR a approximately However, of of

with The lower portfolio off. loans, to improve. pay those expected older our continue of LIBOR further our sensitivity to floors seasons short-term As in declines vintage is rates portfolio and the to

We shareholders as that while risk returns attractive on our attractive for company opportunities and stabilize remain real of our we goals We commercial strategic progress our substantial strategy made have available business. our confident an debt adjusted and our generate the grow continue to in growing investment taking will advantage executing estate markets.

over turn will activity call investment the discuss detail. our more Now, Steve Alpart I to to in

Steve Alpart

our and this Jack, for you you, Thank call morning. thank joining all

opportunities plentiful our in We our quarter total of the in lending $XXX momentum advantage XX close loans attractive with over continued commitments and third taking new originations strong market. of million, the

preexisting inception and consisted were fundings aggregate we've of million since fundings loan $XXX of million Our loans. and $X the from the our million $XX business $XXX about commitments loans, new of million initial of two fundings loan upsizing of had of of the highest from future about

loans high office The geographical are multifamily with newly and well secured in exposure. sectors by mainly balanced the quality a originated properties,

credit experienced originations Our attractive weighted sponsors, of have profiles average a LIBOR of weighted third yield with a average quarter stabilized and plus LTV X.XX%. XX%

we amortization. During realized quarter, the third principle $XXX prepayments and of about million

leading quarter, volume to driven However, refinance implement of our or $XXX portfolio to either sell time to of we prepayments expect have the by plans, sponsors their had further more million primarily seasoning successfully the now the their in a properties. fourth as of exceed our them business

the the we of realized grew Driven $X.X by committed end about balance billion. portfolio the balance a our about investment and have fundings billion Since consistent of prepayments, prepayments. of fully over loan third relatively $X this with of principle loan quarter, to already $XXX quarter million record

portfolio significant tenant well-insulated XX% credit or Our LTV focus philosophy to with exhibit origination with is is our diversification, yield under of portfolio investment characteristics and sponsors. from XX% and well investments. portfolio remains is types, average to continues weighted weighted property and average and the exposure strong X.XX% diversified stabilized senior deep concentrations. risks underwriting for Consistent plus our sponsor emphasizing across and binary across loans credit our on The our our strong markets LIBOR at accounting over

date, commitments To over million new initial pipeline. forward our have million, over we $XXX of fundings. have of which to generated loan aggregate $XXX Turning

So which commitments. prior funded over loans, about have of $XXX far, of million we $XX million funding includes from our

closing the properties point loans of the our with is close remaining expect next a during of loans array Similar conditions. third the delay pipeline may some office to our in to diverse across We customary quarter fourth characteristics. mainly subject markets at and located strong and concentrated to multifamily credit though some most quarter, on originations, year

higher We level subject we Xs growth quarter in forward third in pipeline loans the currently over Considering most end, estimate more close assuming our low and mid anticipate a fourth the to of loans compared that modest to the year LIBOR. timing the the of quarter would to loan yields prepayments closings. in pipeline produce QX our by of expected portfolio to

I our review will now call detailed the of more results. to turn Marcin a for over financial

Marcin Urbaszek

our and Thank joining good you, morning everyone. Thank you for Steve, call.

strong in robust a capital resulted portfolio our quarter growth. healthy the deployment continued in XX% this third year and net Our originations

both as decline was legacy during impacted Our were affected however, of growth, portfolio financial lower credit our the quarter by one-month on lower the strong have sheet. It the results, relative about originated our on by the well to sides as on loans balance spreads by repaid. Despite income loans movements only short increased interest newly rates significant the that X%. interest and spreads term our third in LIBOR

additional were the causing we Over increased heading fourth the third to our into in originations borrowings liquidity volume fund cash. and provide delayed carry with course of significant excess the the some quarter, our to quarter, our of which on quarter the us negative of

As second the net we which quarter. to interest about share in versus income higher a result, our contributed interest recognized decline penny the a expense, per of

were end, drag prepayments in those the also our quarter loans third Since our the we of for created Additionally, as funds loans liquidity of CLO. delayed. quarter closings of CLO largely the finance deployment on reinvested have additional some earnings new managed targeted

a or the our earnings combined to shares EPS largely the lack higher in less in core slightly our in $XX.X quarter than quarter through per the share $X.XX or decline million recognition growth quarter. of million accounted third our of servicing from portfolio income in and The expenses quarter. $X.XX outstanding additional The the interest of second with in in fees issued share impact by prepayment third second ATM for the for results $XX.X net to per penny driven accounted decrease

common September share. $XX.XX XX Our was value book per at

Turning increased available to $X.X down originations. to growth to drawing credit over our leverage, portfolio fund facilities driven new outstanding our of the the by loan and balance billion, borrowings our financing and on

earlier. end, cash a higher loans of that quarter at I as balance through we prepayments result CLOs to much the financed the carried restricted referred of a Additionally,

of upsize second our Our unchanged our options was some quarter. $X.X of to facilities, total borrowing capacity, billion from the inclusive

million total X.X and leverage reinvest including the the non-recourse, was mark-to-market level ended leverage third liquidity quarter recourse total would the with times our ratio times. we to our upsize this repayments. quarter, our deploy generally from We to loan $XXX to million our non We to we CLO remain and around also million. option realize third capacity from our at expect to capital near-term grow borrowing as $XXX $XXX facility from up During the quarter facility million, million. to exercised the We can Wells partially $XXX to facility million. we our on end, we which the further be Since $XXX JPMorgan option have further exercised the upsize to can expect increased Fargo in equity continue debt, debt partially $XXX to the this remaining three to

for Thank you today call the joining to to open now will and us again operator I ask the questions.

Operator

first now session. Please will KBW. [Operator Jade We question-and-answer the with The question Rahmani from comes Instructions] go begin ahead.

Unidentified Analyst

This and the interest in main for for a morning. that that taking reason I Can actually appreciate the in your interest remarks catch the Thanks. quarter. the quite so prepared Good please? around interest I Marcin, try is drivers why Jade. you for Thanks on for Ryan spiked us much questions. didn't further, commentary the expense clarify the just bit the income. of expense to

Marcin Urbaszek

morning. joining us. Good Thank Sure. you for

managed has the We the also expense offsetting close third million results. $XXX if about overall of were for closings the on smaller later. that's the on we’re carried, available impacted this And the given delayed, funds some which call liquidity borrowings it, that larger extra So sheet to the to preserving for closing, loans quarter. essentially we're liquidity little of interest excess carries X.X% liquidity and what our and to income some the our income a was bit large financed for Most were the and that relative pressure our interest we theme is couple number that size, more X%, you in reinvestment keeping of the net puts our extra unfortunately of as loans, which a think million which without deployed. excess look, impact $XXX loans having balance been happened CLO larger obviously at, it, interest through which significant the resulted in months, liquidity for the results, including quarter

Jade Rahmani

terms reach interest the dividend where be to today on Marcin, returns? year reflect expect level the returns the broadly of And the way the level do dividend adjusted Jade. earnings a it fourth to in follow perspective in this levered the you you expecting just next on given Two dividend about the current outlook core Are to earnings? to are Harbors the should established and for as quarter? is transaction. thinking Based dividend rates, reach in was Or

Marcin Urbaszek

Jade. Good morning, you for question. Thank the

QX address prepayments. you the will of factors to and earnings know the look, and say, obviously as that. the I exact So closings after our predict the I'll difficult such for it's number as there as loan influencing take first the many are dividends fourth timing I'd quarter

expect his mentioned remarks. this in as We quarter Steve a level higher prepays of prepared

a So LIBOR, that rate driver obviously, a in We largely short floating have some exposure will are portfolio. be with term trends along the rates. as to the we still

somewhere low mid Also to Steve pipeline mentioned, the over yields estimate in the be in we our LIBOR. forward to XXXs

impact. the on loans with the paying yields higher So an will are that that off have also combined

I consideration our can have volume effect fourth it's the to on the those taking also temporary pinpoint EPS, factors our support just as some sheet a So loans of balance mentioned, a to that, and high the quarter. in fact for movements number of all hard into

speaking there so of Now, of factors lot that. the that dividend, are a affect also,

We profitability. different Also, That'll do credit returns had. variety such depend earlier, for We not core in additional order focused available obviously investments run the generate alluded a on and things strategy. dividends rate to profile the we obviously, market supporting through in risk as for excess our yield. expect QX, longer-term the our a liquidity change of the are stable to to of the I of on

as in of and half QX the funded have quarter mentioned. in so million $XXX second loans over far over fourth $XXX million of Steve we the Now

So expense the during most on offset the should earned liquidity, quarter. excess loans help extra we've the so that invested of new interest income to these interest definitely

it Third, deleveraging which off, efficient. our a been first less bit deal, a as has loans making little CLO, is have been paying static

of prepayments a address portion our implement to to but a as it expect looking issue, this some of continue We this different loans We're trend time at meaningful us in variety that. trust. to financed expected are that take will options for

somewhere me though Additionally, average times, of the times we kind we to was illustrates underlevered leverage for X.X for the three that the so quarter around about quarter. even ended at were equity the that quarter To the that debt ratio, third level.

to liabilities. we on little bit three a So the more times we have more our maybe some rationalizing room consistent basis out up with level, to lever done a portfolio once are that higher

the variables, leverage adjustments the and dividend other of regarding more the and term, the discussion make the focused on level efficient. and with we're capital funds assess more necessary more bring investing be we making abilities getting we once board core our level more future. have our into of longer sheet doing against reinvesting of all will the the toward work profitability So will of sustainable on stabilized remaining the And structure factors funding effects all with in that our level we our to from balance a reevaluate repayments a consideration, taking those and the our

Jade Rahmani

that. for Thanks

realistic I of and and dividend XX.X% think book implies X% that require return current would that expense being it's your given gross considering XX%, value G&A, around worth structure on ROEs. the the

the the history CMBS businesses generate businesses, been commenting I ROEs Wondering in if have that XX.X% more the ancillary have asked have updated which and market, about are on track guys in XX% thoughts Some typically that. your you record range. given ROEs. you thing One past, conduit-type any is in achievable high to

Jack Taylor

our strategies team has as performance. public on capital so different business going the a and on variety returns. Jade. opportunities bringing focused evaluating various sheet of ago, many Well, two to is really Good investment balance But we're to And done capabilities we've with years formats we've past, over as over our rate we run business careers. deploying more will I solely growing Jack. you. the in our and long evaluating execute strong since drive and to our open been speak discussed extra that Hi, think, This to always

out expand we're that won't well not partnerships strategic a sense as that we the rule us makes looking So risk perspective. could help doing a or and if We rule actively currently out from to that won't potential so. do but both business, JVs

the So imminent, nothing not excluded. but answer is

what to saying something for referred he company. just our And CLO I the about improving add to market. want financing was Marcin our to

in As two executed of do. types we've the with said way complementary today. the market and business in the our positioned our we borrowings conjunction issuer CLO to we've And the a past, CLO we market. finance also as And other repeat we've CLOs to in view be very company attractive

received know, broad institutional repeat you array well investors both of them many deal. a As of second of really by investors, the supported which were and in

pace ample take picked origination up we've the as advantage year, has we significantly have and grown this asset our capacity of portfolio to And market. CLO

close paying attention I'll noticeably executions advantageous the CLO the available in more market, been we've to So including to issuers. call developments what the

sheet considering to we've our market our some way developments catch that CLO of advantage new the and in able take So in us of. the securitization beneficial another should balance to with be that have a peers been help to been up

to over conditions, depending may market the CLO And market the so months. next on elect overall we several access

Jade Rahmani

Thanks very much.

Jack Taylor

you. Thank

Operator

Rick go The ahead. Please with Shane comes next question JPMorgan. from

Rick Shane

leverage Hey during questions guys, for the this was the Marcin, cash my taking talked you the thanks quarter. morning. about average balance? average What

Marcin Urbaszek

the $XXX you and would The managed if in million. million. was at covenant cash of keep at to between – balance the that, and cushion I definitely try to CLOs liquidity, of requires least sheet maintain had We million. a $XX access that our funds the definitely try we look $XXX our north somewhere We above north. on some think I that say,

$XXX the million liquidity Northeast the one larger definitely loans would mentioned if our course to excess say, of office loan to this that $XXX you great replace impacts, What was negative happened one carry had it. recall repaid quarter. the repaid at we another of office had trust. the that second over I of we last quarter we it was million one Unfortunately We our, It for of, that. So loan actually of large got some why was end on of in quarter. that so was partially the had the managed loan delayed, the slated

So.

Rick Shane

that dividend, ties okay, And X%. today required it. at where If – we sort achieve book helpful the been history the or implied above look Got at of the If this ROE company. question context. at about at ROE so look of just that's in we the asked. the into and that's the point any to Jade has That's value frankly

the environment bare rates costs In are to value, an at that grow base tool widen in substantially or point is you where, You're either to minimum, against book the a And increase the achieve to What's sustainable? lower dividend, you. best working spread, dividend leverage. there? funding order need

Marcin Urbaszek

the was earned a Thanks, the are of would of that that of quarter, probably Rick. diluted which things raise, lot earlier, by there I But first assume was us Obviously that factors equity our a in reasons. XXXX. we it. Look, dividend many for our QX I as equity for then have would lot in different for offering Since said affect happened. strategic

power think I another additional Jack earnings we potentially CLO. some coming from as mentioned, have

will trust us provide We excess at some – capital more the market inefficient. additional first with earnings CLO that more some provide definitely us in that will that's Releasing stuck with have that's definitely of today power. becoming and looking

conditions we the are business. our the of look about about market structure But realistic and

had a time quality produce assets, And liabilities, discussing returning high that of the our this our can quality, proven We very are lot rationalize board. our continuously we've and to well assets. once we've with we

will core we as take it sheet, addressing side we've liability of and the with our business as the balance our once done our actions any of So profitability again reassess we necessary discuss board.

Rick Shane

thank much. Great, you so

Operator

next Citi. The question [Operator Arren go ahead. Cyganovich Instructions] with Please comes from

Arren Cyganovich

Thanks.

expect quarter to more of to getting $XXX million. to Do season any as to level repayments had would in see be fourth around the elevated fourth prepayments likely will – as this portfolios what those prepayment you prepayments sustainable You that here? think a mentioned are you relative there your of the income is starting for And do significant of quarter? you kind

Steve Plust

Steve assets Hey, to like that. million is prepays onto Obviously, think the Plust. these for Marcin. consistent. I'll certainly when is quarter-to-quarter and and to morning. quarter-to-quarter lumpy on respect rate be said or XX% Thanks a are repeatedly Arren, $XXX Good going are these a smooth around And calls the fees, question. this it we of and these sustainable with something the annually that move to portfolio going approaching level We've prepayment numbers not pass they're matures,

Marcin Urbaszek

Thanks, Steve. Hey, Arren.

when. of of which some depending protection now, maintenance on of obviously the that repay which and a it's mix ones, of have call older over it's As course There are which that newer that right – period vintage, are the may quarter. and period loans yield out loans expire are fourth the

hard income obviously a between and it's So had quarterly. really estimate. zero million prepayment almost to dollars We've

hard So have – it's loans, really say on. now we're whether of to on to the going the depending again, anyone time right it's

Arren Cyganovich

And your think now Do fund in of going kind to of consistently into sound that at book to with or year? slightly your guess portfolio Okay. provide I have recycling and can it a what pipeline below you trading much. have increase leverage next you the you're enough you capital value the too like enough of doesn't stock

Jack Taylor

origination loans beyond excess in meaningfully liquidity in do, that. generate Thank that's in of have And Yes, our we but we your prepayments of quarter, have And noted, million new we that. to is about higher fourth for you plus this This growth and pipeline enough to do. cover also we hand beyond additional question. $XXX Jack. as do I'll that and capacity say originate additional we should origination expect

the So reinvest that's not capital. for growth, that's to

in to our our of pipeline. ability take So, we're care well covered

net will and on billion market depend portfolio. generate, we're capacity what going But we will a doing. And We to of rates make depending about just shown platform. we're actually have we're prepayment capacity or stable to sure have $X the the how we've to careful always on very grow cover whether are out the year conditions to our be, our as what the of growth not

Arren Cyganovich

Thank you.

Operator

next from Rahmani KBW. question go The with Please comes Jade ahead.

Jade Rahmani

sorry risk on loans, And could there the I but are quarter, missed last I just four you if I'm this color that? think provide one. Thanks. rated two earlier, now

Steve Alpart

It's Hey, Alpart. question. for joining. Jade. Thanks Steve the for Thanks

So risk to reserves for for that performing. we're maintain loan still secured at debt loan continuing four monitor on is well expect other QX. do any that than what We on the rating payment. might not we in asset to be create of asset And it's required current that past X/XX the under we're the believing and CECL. We we mentioned are XXX% its

really – that's So basically quarter. since change no so last

Jade Rahmani

risk there were quarter and one. I guess, loans there's now other rated the last loan? what And to happened are two four

Steve Alpart

Sure.

in earlier, had that we Jack mentioned are As at multifamily New York repaid loans QX, asset during a and par.

Jade Rahmani

to Was control? that subject rent

Steve Alpart

and de general control. That as don't was of typically part is asset underwrite our leading subject those of approach, were business it rent types plan a had assets, rent that control. it in to a few But we minimis the units to

off, were by concerned one So new that if about not paid not had it being the loss. impacted we

Jade Rahmani

of real that. the that's estate most commercial lot has default. XX% year question, defaults loan commercial in the credit estate upon benign drawing and business to but talks the due at industry. again, we're for maternity are to a in doorstep of experience a about loans broader have I wanted yet refinancings, even of ask ten those been about has because Everyone real maturities though the Thanks not how anniversaries your cycle been, there

XXXX portfolio, originations? come pickup XXXX the we anniversary next So default as just away overall, GPMT's but the for in are loan looking expecting upon from a the the year of industry – you

Steve Plust

morning. It's Steve Good Jade. Plust. Hey,

a if going really you, I'm say I would and say, macro soft episodic. because or Sorry experience, defaults got are specific too a from when market. unless really plan most speaking. against you've It's And what it, a being cycle business a idiosyncratic our to particular little particular call hard to

or now. imagine were in don't would years sure, the I For some refinancings ago, – getting snafus or XX global global conditions right but made there see originations of in macro local macro way a I

Jade Rahmani

the And in frequency borrowers? with management terms what's of process, your of level asset internal of own dialogue

Steve Plust

with high it nature assets. dialogue plans pretty There's business a reviewing a where, activity reports, state result, future CapEx constant, going the what's We're on, the of the as of leasing It's the review. given require budget but doing sponsors about lot fundings. very that call plans, our I of reviewing participation wouldn't frequent annual

So we're with these continuous sponsors fairly on our dialogue in business plans.

Jade Rahmani

very Thanks much.

Steve Plust

pleasure. our It’s

Operator

I This remarks. concludes conference our session. Taylor Jack over like to turn for closing to back any question-and-answer the would

Jack Taylor

like business we operator, say, you your us everyone for you. and thank and taking just Well, I you with will speaking I'd time to to look thank support our all the again and for for joining today forward of and Thank soon.

Operator

The conference has now presentation. been concluded. Thank you today's for attending

disconnect. now may You

Granite Point Mortgage Trust (GPMT) 6 Nov 192019 Q3 Earnings call transcript