Granite Point Mortgage Trust(GPMT) - 2019 Q4 - Annual Report

PART I Business Granite Point Mortgage Trust Inc. is a REIT focused on originating and managing senior floating-rate commercial mortgage loans, with a $4.3 billion portfolio as of December 31, 2019 - The company primarily focuses on directly originating, investing in, and managing senior floating-rate commercial mortgage loans and other commercial real estate debt[15] - Granite Point is externally managed by Pine River Capital Management L.P. but has announced an agreement to begin the process of internalizing its management function[18][21] Portfolio Summary as of December 31, 2019 | Metric | Value | | :--- | :--- | | Number of Investments | 122 | | Aggregate Principal Balance | $4.3 billion | | Potential Future Funding Obligations | $748.9 million | | Weighted Avg. Initial LTV | 66.6% | | Weighted Avg. Stabilized LTV | 64.2% | | Weighted Avg. All-in Yield | L+4.26% | - The company's financing strategy utilizes repurchase facilities, asset-specific financings, a revolving credit facility, and CLOs, with an expected leverage not to exceed a 3.5-to-1 debt-to-equity ratio[32][33][35] - The company operates to maintain its qualification as a REIT for U.S. federal income tax purposes and its exclusion from registration under the Investment Company Act[17][50][52] Risk Factors The company faces significant risks from market conditions, interest rate fluctuations, financing dependencies, management internalization, and maintaining REIT and Investment Company Act exemptions - Difficult conditions in commercial real estate and financial markets, such as the COVID-19 outbreak, could adversely affect borrower operations and increase default risk[57] - The planned transition away from LIBOR after 2021 creates uncertainty for the company's $4.2 billion portfolio of floating-rate loans, potentially affecting financing costs and net investment income[110][111][112] - The process to internalize the company's management function involves significant uncertainties, including potential delays, unexpected costs, and the need for lender consents, which could disrupt business operations[142] - Maintaining the company's exclusion from registration under the Investment Company Act imposes operational limits, restricting certain investments and potentially hindering profit maximization[159][161] - Failure to maintain REIT qualification would result in being taxed as a regular corporation, leading to substantial tax liability and reduced cash for stockholder distribution[180] - The adoption of the new Current Expected Credit Loss (CECL) accounting standard is expected to materially increase the allowance for loan losses and could introduce more volatility in earnings[114][115] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[238] Properties The company does not own any real property, operating from a sub-leased office space in New York considered adequate for its operations - The company's principal executive office is located at 3 Bryant Park, Suite 2400A, New York, New York 10036 in a sub-leased space[239] - The company does not own any real property[239] Legal Proceedings As of the filing date, the company is not party to any litigation expected to materially adversely affect its financial condition or operations - The company is not currently party to any legal proceedings that would have a material adverse effect on its financial condition or results of operations[240] Mine Safety Disclosures This item is not applicable to the company - None[241] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is listed on the NYSE under 'GPMT', with regular quarterly distributions and no repurchases in 2019 - The company's common stock is listed on the New York Stock Exchange (NYSE) under the symbol "GPMT"[243] Dividends Declared per Share (2018-2019) | Declaration Date | Cash Dividend Per Share ($)| | :--- | :--- | | December 18, 2019 | $0.42000 | | September 18, 2019 | $0.42000 | | June 20, 2019 | $0.42000 | | March 20, 2019 | $0.42000 | | December 19, 2018 | $0.42000 | | September 20, 2018 | $0.42000 | | June 20, 2018 | $0.40000 | | March 15, 2018 | $0.38000 | - As of December 31, 2019, there were 2,579,965 securities available for future issuance under the company's 2017 Equity Incentive Plan[249] - The company did not repurchase any of its common stock during the fiscal year ended December 31, 2019[254] Selected Financial Data Selected financial data for 2015-2019 shows significant growth in total interest income to $246.3 million and total assets to $4.46 billion in 2019 Selected Financial Data (2015-2019) | (in thousands, except per share data) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Income Statement Data | | | | | | | Total interest income ($) | $246,257 | $183,880 | $117,837 | $60,828 | $9,139 | | Net interest income ($) | $109,275 | $92,357 | $75,374 | $49,799 | $8,662 | | Net income attributable to common stockholders ($) | $70,114 | $62,975 | $53,255 | $35,357 | $138 | | Diluted earnings per share ($) | $1.32 | $1.42 | $0.60 | — | — | | Dividends declared per common share ($) | $1.68 | $1.62 | $0.70 | — | — | | Balance Sheet Data (at year-end) | | | | | | | Loans held-for-investment ($) | $4,226,212 | $3,167,913 | $2,304,266 | $1,364,291 | $582,693 | | Total assets ($) | $4,460,862 | $3,361,881 | $2,499,130 | $1,495,607 | $722,744 | | Total stockholders' equity ($) | $1,019,136 | $827,531 | $828,621 | $427,991 | $486,942 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2019, the company achieved $70.1 million net income, originated $2.0 billion in new loans, and strengthened its financial condition with a 3.3:1.0 debt-to-equity ratio - 2019 Operational Highlights: - Originated 45 senior commercial real estate loans with a total commitment of $2.0 billion - Funded $1.8 billion in aggregate loan balances - Received $778.5 million from principal repayments - Closed a second CLO financing, increasing matched-term, non-recourse funding[267][272] 2019 vs. 2018 Operating Results | (in millions) | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | | GAAP Net Income | $70.1 | $63.0 | | Core Earnings (Non-GAAP) | $74.6 | $66.3 | | Dividends Declared | $91.0 | - | | Dividends per Share | $1.68 | $1.62 | - Upon adopting the new CECL accounting standard on January 1, 2020, the company expects to record an initial credit loss reserve of approximately $18.5 million, equivalent to about 0.37% of its aggregate loan commitment balance[292] - The debt-to-equity ratio increased from 2.9:1.0 at year-end 2018 to 3.3:1.0 at year-end 2019, driven by increased financing on new loan originations[344] Contractual Obligations as of December 31, 2019 | (in thousands) | Total ($ thousands) | | :--- | :--- | | Repurchase agreements | $1,924,021 | | Asset-specific financings | $116,465 | | Revolving credit facilities | $42,008 | | Convertible senior notes | $269,634 | | Interest expense on borrowings | $178,754 | | Unfunded commitments on loans | $748,878 | | Total | $3,285,083 | Quantitative and Qualitative Disclosures About Market Risk The company manages market risks, including credit and liquidity, with 98.5% of its portfolio in floating-rate assets, making net income positively correlated with rising interest rates - The company's portfolio is primarily composed of floating-rate assets, with approximately 98.5% of its portfolio by carrying value earning a floating rate of interest as of December 31, 2019, generally resulting in higher net income during periods of rising interest rates[373] Interest Rate Sensitivity Analysis (as of Dec 31, 2019) | (in thousands) | -100 bps | -50 bps | +50 bps | +100 bps | | :--- | :--- | :--- | :--- | :--- | | Change in annualized net interest income ($ thousands) | $19,013 | $7,198 | $5,252 | $10,503 | - As of December 31, 2019, none of the commercial real estate loans in the company's portfolio were non-performing[379] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2019, detailing the company's financial position, results of operations, and cash flows, reflecting significant portfolio growth Consolidated Balance Sheet Summary | (in thousands) | Dec 31, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | | :--- | :--- | :--- | | Loans held-for-investment | $4,226,212 | $3,167,913 | | Total Assets | $4,460,862 | $3,361,881 | | Total Liabilities | $3,440,726 | $2,533,350 | | Total Stockholders' Equity | $1,019,136 | $827,531 | Consolidated Statement of Comprehensive Income Summary | (in thousands) | 2019 ($ thousands) | 2018 ($ thousands) | 2017 ($ thousands) | | :--- | :--- | :--- | | Total interest income | $246,257 | $183,880 | $117,837 | | Net interest income | $109,275 | $92,357 | $75,374 | | Net income attributable to common stockholders | $70,114 | $62,975 | $53,255 | - The company's loan portfolio is diversified by property type, with Office (42.0%), Multifamily (25.1%), and Hotel (15.2%) being the largest concentrations by carrying value as of December 31, 2019[476] - As of December 31, 2019, the company had unfunded commitments on commercial real estate loans held-for-investment of $748.9 million[534] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles, financial disclosure, or auditing scope - None[590] Controls and Procedures Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019, affirmed by an unqualified auditor opinion - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[591] - Management's assessment concluded that the company's internal control over financial reporting was effective as of December 31, 2019, based on the COSO framework[597] - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2019[601] Other Information The company reports no other information for this item - None[609] PART III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[611] Executive Compensation Information for this item is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[612] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[613] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[614] Principal Accounting Fees and Services Ernst & Young LLP served as the independent auditor, with total fees of $936,242 in 2019 for audit and tax services, all pre-approved by the Audit Committee Principal Accountant Fees (Ernst & Young LLP) | Fee Type | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | | Audit fees | $765,000 | $859,552 | | Tax fees | $171,242 | $197,476 | | Total | $936,242 | $1,057,028 | PART IV Exhibits, Financial Statement Schedules This section lists documents filed as part of the Annual Report on Form 10-K, including consolidated financial statements and an index of exhibits - The filing includes consolidated financial statements and Schedule IV - Mortgage Loans on Real Estate[621] - A detailed index of exhibits, including governance documents, material contracts, and certifications, is provided[622][625] Form 10-K Summary The company has not provided a summary for this item - None[623]