NYSE:GPMT Granite Point Mortgage Trust Q2 2024 Earnings Report $1.65 -0.11 (-6.25%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$1.79 +0.14 (+8.48%) As of 04/25/2025 07:17 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Granite Point Mortgage Trust EPS ResultsActual EPS-$0.08Consensus EPS -$0.08Beat/MissMet ExpectationsOne Year Ago EPSN/AGranite Point Mortgage Trust Revenue ResultsActual Revenue$48.48 millionExpected Revenue$9.50 millionBeat/MissBeat by +$38.98 millionYoY Revenue GrowthN/AGranite Point Mortgage Trust Announcement DetailsQuarterQ2 2024Date8/5/2024TimeAfter Market ClosesConference Call DateTuesday, August 6, 2024Conference Call Time11:00AM ETUpcoming EarningsGranite Point Mortgage Trust's Q1 2025 earnings is scheduled for Tuesday, May 6, 2025, with a conference call scheduled on Wednesday, May 7, 2025 at 11:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Granite Point Mortgage Trust Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 6, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Good morning. Speaker 100:00:00My name is Daryl and I will be your conference facilitator. At this time, I would like to welcome everyone to the Granite Point Mortgage Trust Second Quarter 2024 Financial Results Conference Call. All participants will be in a listen only mode. After the speakers' remarks, there will be a question and answer period. Please note today's call is being recorded. Speaker 100:00:20I would now like to turn the call over to Chris Petta, sorry, Investor Relations for Granite Point. Operator00:00:28Thank you, and good morning, everyone. Thank you for joining our call to discuss Granite Point's Q2 2024 Financial Results. With me on the call this morning are Jack Taylor, our President and Chief Executive Officer Marcin Urbaszek, our Chief Financial Officer Steve Alpart, our Chief Investment Officer and Co Head of Originations Peter Morel, our Chief Development Officer and Co Head of Originations and Steve Pluss, our Chief Operating Officer. After my introductory comments, Jack will provide a brief recap of market conditions and review our current business activities. Steve Alpart will discuss our portfolio and Marcin will highlight key items from our financial results and capitalization. Operator00:01:05The press release, financial tables and earnings supplemental associated today's call were filed yesterday with the SEC and are available in the Investor Relations section of our website, along with our Form 10 Q. I would like to remind you that remarks made by management during this call and the supporting slides may include forward looking statements, which are uncertain and outside of the company's control. Forward looking statements reflect our views regarding future events and are subject to uncertainties that could cause actual results to differ materially from expectations. Please see our filings with the SEC for a discussion of some of our risks that could affect results. We do not undertake any obligation to update any forward looking statements. Operator00:01:44We will also refer to certain non GAAP measures on this call. This information is not intended to be considered in isolation or a substitute for the financial information presented in accordance with GAAP. A reconciliation of these non GAAP financial measures to the most comparable GAAP measures can be found in our earnings release and slides, which are available on our website. I will now turn the call over to Jack. Speaker 200:02:09Thank you, Chris, and good morning, everyone. We would like to welcome you and thank you for joining us for Granite Point's 2nd quarter 2024 earnings call. The first half of twenty twenty four has been characterized by macroeconomic uncertainty, including volatility and uncertainty about the path of interest rates, which in turn has continued to impact transaction activity in the commercial real estate market. More recently, however, consensus has been building about the potential for the Fed to begin reducing short term rates in the coming months, which was bolstered by the Fed meeting last week and solidified even further by the weak employment report in the market reaction. Expectations over the last few months has led to improving confidence in the real estate market and a market pickup in transaction activity though remains well below historical levels. Speaker 200:03:04Securitization funding markets for stabilized properties have seen increased activity this year, while liquidity for transitional assets is slowly returning. As transaction flows continue to improve, we're seeing some more market transparency around property valuations. We believe that the move away from the sharply negative sentiment in the market that occurred in March April, following the substantial rise in interest rates at the end of the Q1, We'll continue to improve the overall level of real estate transaction activity, while property valuations continue their bottoming process. These trends are beginning to play out in our portfolio with recent resolutions of assets and more on the horizon in the coming months and quarters, as well as a step up in anticipated loan repayments. Our proactive approach to asset management has resulted in meaningful progress and that we resolved 4 non accrual loans over the last couple of months with an aggregate principal balance of over $135,000,000 each involving a different strategy in order to drive the best possible outcome for the company. Speaker 200:04:15We are actively pursuing resolutions of the remaining non accrual loans, which are in various stages of their respective processes. We have visibility on approximately $200,000,000 to $300,000,000 of more loan outcomes remain difficult to predict given the nature of such transactions and market uncertainty. However, we are encouraged by the progress continue to make on these assets given their pressure on our run rate profitability. Our approach to non accrual resolutions emphasizes a balance between timing, potential earnings and book value impacts, liquidity needs and other factors, while we work to maximize economic outcomes and best position the company for long term success. Improved visibility regarding the future path of interest rates is likely to be the main factor affecting the activity and the performance of the commercial real estate floating rate loan market in the near to medium term. Speaker 200:05:18A higher level of real estate investor confidence around the cost of capital and price discovery on property values should continue to drive deployment of capital into this market, including the large amount of dry powder that is still on the sidelines, improving overall liquidity. As we progress towards additional non accrual loan resolutions over the next quarters, we have increased our CECL reserves to reflect the ongoing pressure on property values. We have been proactive in identifying potential credit issues and building loan loss reserves ahead of the potential charge offs as market trends continue to evolve with more price discovery and as visibility improves based on the resolution progress of individual assets. We are encouraged by the meaningfully slower pace of credit migration within the portfolio in the resulting in stable risk ratings quarter over quarter. We believe we are getting closer to the end of this period of extreme market stress and further potential credit issues within the sector and in our portfolio. Speaker 200:06:23Nonetheless, while the market tone has been improving of and transaction activity picking up, given how volatile and unpredictable this cycle has been, the risk remains for select additional credit migration and incremental credit loss provisions. However, given our recent experience and our outlook on non accrual loan resolutions, the level of our total CECL reserves should decline in the coming quarters. As we see markets stabilizing and capital slowly returning to the floating rate transitional space, we remain highly focused on our asset and liquidity management activities while moving through this credit cycle. Repositioning our portfolio over time will position us to return to our core lending business and regrow the portfolio while improving run rate profitability. At the same time, we have maintained our flexible capital allocation strategy focused on relative value and generating attractive total shareholder returns over the long term. Speaker 200:07:20As such in June, our Board of Directors decided to reduce our quarterly common dividend to $0.05 per share to protect investors' capital considering the challenging credit environment and the near term pressure on our earnings. Because the company's public market valuation presents a compelling relative value, during the Q2, we repurchased about $1,500,000 of our common shares at a deep discount, which benefited our book value by about $0.05 per share. We currently have about 3,600,000 common shares remaining under the current share repurchase authorization and we intend to remain opportunistic with respect to any potential future buyback activity taking into considerations market valuation, liquidity, leverage and portfolio performance among other factors. We believe that accretive share repurchases during times of deeply discounted market valuation are a prudent way to generate attractive total economic returns over time. We firmly believe that during challenging periods emphasizing balance sheet stability and protecting our investors' capital is the prudent and effective strategy to drive long term shareholder returns, while continuing to reposition the business for future growth opportunities. Speaker 200:08:34As we look out into the next few quarters, expected interest rate reductions are likely to contribute to the ultimate recovery of the commercial real estate market. We will continue to proactively asset manage our portfolio and emphasize our liquidity, while driving further loan repayments and non accrual resolutions, which will significantly contribute to improving our run rate profitability and position us to take advantage of attractive investment opportunities in the future. I would now like to turn the call over to Steve Alpart to discuss our portfolio activities in more detail. Speaker 300:09:09Thank you, Jack, and thank you all for joining our call this morning. Since our last call, we've seen some increased transaction activity and improved liquidity and are beginning to see capital slowly returning to transitional assets. Improved market sentiment has contributed better visibility on certain loan repayments and progress on non accrual resolutions. During the Q2, we realized about $56,000,000 of net repayments and paydowns, while resolving 2 non accrual loans totaling about $47,000,000 in UPB. Since quarter end, we've realized an additional $143,000,000 of repayments, including a $54,000,000 office loan from rate CMBS refinancing, and I resolved 2 additional non accrual loans with an aggregate UPB of about 88,000,000 dollars We've used a number of different strategies to resolve assets, while balancing multiple objectives to achieve the best economic outcomes. Speaker 300:10:14The $12,000,000 loan secured by the multifamily property located in Milwaukee was repaid during the Q2 at a small loss and around our carrying value. We worked collaboratively with the borrower over several quarters to effectuate a successful sale of the property without having to provide seller financing to the buyer. Also during the Q2, we acquired title to an office property located in suburban Boston, which had previously secured a $36,000,000 senior loan. The asset was transferred to REO at the loan's carrying value, and the property is generating positive cash flow. We believe there is embedded value in the property with attractive optionality for alternative uses for parts of the building and development opportunity related to excess land. Speaker 300:11:07Since quarter end, we have resolved 2 additional loans totaling 88,000,000 the $37,000,000 non accrual loan secured by a mixed use office and retail property located in Downtown Los Angeles. This transaction also involved our coordination with the borrower to sell the collateral property for cash without providing acquisition financing. The loan was unlevered and resulted in a positive liquidity event for the company. Also in July, we restructured the $51,000,000 senior loan collateralized by a mixed use multifamily office and event space building located in Pittsburgh. The property is well located with many attractive attributes. Speaker 300:11:53However, the performance of the office and multifamily components have been impacted by weakness in the technology sector, which has a large presence in the local market. The modification included a bifurcation of the loan into a new $32,000,000 mortgage loan and a $19,000,000 mezzanine loan with the sponsor committing additional capital to further support and improve the collateral property. We're very pleased with the progress we've been making to resolve our credit impacted loans. As Jack stated earlier, we have visibility on additional resolutions in the near term with 7 of the 8 remaining risk rated 5 loans in various stages of their individual sale processes, though the exact timing is hard to predict. The mixed use office and retail property securing our $94,000,000 loan in New York is likely to be under our sales contract soon with an anticipated closing during the Q4. Speaker 300:12:47The mixed use retail and office property collateralizing the $82,000,000 loan in Baton Rouge is in a sales process. And though the ultimate timing remains hard to predict, we hope to reach a potential resolution in the coming months. Similarly, coordinated sales processes are ongoing for the $26,000,000 loan secured by the office property in Boston, the $29,000,000 loan securing the Minneapolis Hotel and the $34,000,000 2nd quarter, we experienced relatively limited credit migration within the loan portfolio, with $120,000,000 loan collateralized by an office property in Denver moved from a risk rating of 4 to a rating of 5. The property has been negatively impacted by local market office leasing dynamics, and the sponsor is in the initial stages of marketing the property for sale. In addition, we also downgraded 2 other loans, one office and one hotel, with an aggregate UPB of about $82,000,000 to a risk rating of 4, as the collateral properties have been impacted by varying degrees by leasing challenges and limited market liquidity. Speaker 300:14:01The portfolio the loan portfolio risk ratings remained stable quarter over quarter. We're encouraged by the progress we've made so far addressing the non accrual loans and are pleased to see that most of our high quality institutional sponsors continue to support their properties and are progressing on their business plans and what we expect to be a slowly improving market. We ended the 2nd quarter with total loan portfolio commitments of 2 point $7,000,000,000 and an outstanding principal balance of about $2,600,000,000 with about $118,000,000 of future fundings, which account for only about 4% of total commitments. Our loan portfolio remains well diversified across regions and property types and includes 68 loan investments with an average size of about $38,000,000 and a weighted average LTV stabilized LTV at origination of 63.7%. Our realized loan portfolio yield for the 2nd quarter was about 7%, net of the impact of the non accrual loans, which we estimate to be approximately 2 29 basis points for the 3 months ended June 30. Speaker 300:15:06During the quarter, we funded about $17,000,000 of existing loan commitments and upsizes and realized about $104,000,000 of UPB loan repayments, paydowns, amortization and resolutions. So far in the 3rd quarter, we have funded about $3,000,000 of existing loan commitments and realized about $143,000,000 of loan repayments, paydowns and loan resolutions. Given current market conditions, we expect the volume of loan repayments and resolutions in the second half of twenty twenty four to be higher than what we realized during the 1st 6 months of the year. We expect our loan portfolio balance to trend lower by the end of the year as we maintain our conservative stance and continue emphasizing carrying higher levels of liquidity and working diligently to resolve our non accrual loans. I will now turn the call over to Marcin for a more detailed review of our financial results and capitalization. Speaker 400:16:03Thank you, Steve. Good morning, everyone, and thank you for joining us today. Yesterday afternoon, we reported a 2nd quarter GAAP net loss of $66,700,000 or $1.31 per basic share, which includes a provision for credit losses of $60,800,000 or $1.19 per basic share, mainly related to certain risk rated 5 loans. Distributable loss for the quarter was $9,100,000 or $0.18 per basic share, reflecting loan write offs of $6,600,000 or $0.13 per basic share and a decline in net interest income mainly driven by non accrual loans. Our book value at June 30 was $9.84 per common share, a decline of about $1.30 per share from Q1, which was primarily due to loan loss provision mentioned earlier, partially offset by the accretive share buybacks we opportunistically executed during the quarter, which we estimate benefited book value by about 0 point $5 per common share. Speaker 400:17:09The 2 small write offs this quarter were related to the resolution of our multifamily loan in Milwaukee and a modification of our loan secured by a design building in New York, which created a small mezzanine note we deemed uncollectible. For more details on this modification, please refer to our Form 10 Q. Given our outlook on the potential near term nonaccrual resolutions Jack discussed earlier, we anticipate incurring over $100,000,000 of write offs over the next couple of quarters, which should reduce our overall CECL reserve balance. Our operating results continue to be pressured by the non accrual loans, which accounted for over 20% of our portfolio as of quarter end. Some of these loans are on cost recovery and any incoming interest is applied to reduced loan principal rather than being recognized in earnings. Speaker 400:18:01We anticipate the run rate profitability of the company to improve in the coming quarters as we continue to make progress on resolving non earning assets, though the exact timing and magnitude remain difficult to predict. Our CECL reserve at quarter end was about $267,000,000 or 5.2 $7 per share, representing 9.7 percent of our portfolio commitments as compared to $213,000,000 or 7.5 percent of total commitments last quarter. The change in our CECL reserve was mainly related to the additional allowance on loans that were risk weighted 5, reflecting additional pressure on property values and increased pricing transparency in the market as transaction volumes and the pace of our resolutions begins to pick up. Our Q2 general reserve increased by about $14,000,000 due to some macro assumptions, expectations for ongoing challenges in the CRE market and certain loan specific assumptions. Over 70% of our total CECL reserve or $195,000,000 is allocated to individually assessed loans, which implies an average estimated loss severity of about 36% on those assets. Speaker 400:19:18As of quarter end, we had about $665,000,000 of loans on non accrual status, which we estimate impacted our Q2 results by about $15,000,000 or approximately $0.30 per share. Turning to liquidity and capitalization, we ended the quarter with about $86,000,000 of unrestricted cash and total leverage increased modestly to 2.5 times in Q2 compared to 2.3 times in Q1 mainly due to a lower equity balance as a result of the higher CECL reserves. During the quarter, we extended the maturity of our Morgan Stanley facility and adjusted its maximum borrowing capacity to better reflect our near to medium term financing needs. We also elected to terminate our Goldman Sachs funding facility, which matured in July as it had no outstanding borrowings and we anticipated limited use in the near term. We continue to enjoy strong support from our lenders, highlighting our long standing relationships in the market, and we expect to expand our financing once we return to originating new loans more actively. Speaker 400:20:25As of a few days ago, we carried about $92,000,000 in cash, which we expect to increase in the coming weeks, driven by some loan repayment activity and the planned financing of the 2 REO assets that are currently unlevered. We remain focused on maintaining high level of liquidity in the near to medium term. We will continue to prioritize financial flexibility and the ability to proactively manage our assets as we simultaneously transition the portfolio to position the company for future growth opportunities. I would like to thank you again for joining us today, and we will now open the call for questions. Speaker 100:21:02Thank you. We will now be conducting a question and answer session. Our first questions come from line of Steve DeLaney with Citizens JMP. Please proceed Speaker 200:21:34with your question. Speaker 500:21:36Hello, everyone, and thank you for taking the question. I guess, clearly, obviously, you're in a defensive mode and that we certainly understand that and appreciate that. The loan portfolio is in runoff, whether it's repayments, which I think you probably welcome right now or moving loans into REO and then trying to dispose of that. But $2,600,000,000 I believe, Marcin, at the end of June, As you guys look out the second half of the year, any sense and I realize I'm asking you for a rough estimate, where might the loan portfolio bottom out? As I'm trying to sense, I'm thinking that maybe distributable EPS, we'd love to see that turn around and be breakeven or positive. Speaker 500:22:25But it feels like that's going to be hard to do with a shrinking loan portfolio. Just would welcome any of your comments on that particular topic. Thank Speaker 400:22:41you. Good morning, Steve. Thank you for the question. Sure. Look, I think it's difficult to sort of predict exactly where things are going to be. Speaker 400:22:50I think as you mentioned, we are sort of maintaining our conservative stance as we sort of resolve these assets and manage REO. I think Steve Alpar mentioned in his prepared remarks that we anticipate portfolio to sort of trend down by the end of the year. I think some of the resolutions will have a positive impact on run rate profitability. I think in the near term, I think distributive EPS sort of run rate ex losses will probably trail the dividend a little bit. But as these resolutions happen in whatever shape or form they may happen, whether it's REO that's cash flow positive or we provide seller financing on a new to a new shareholder to a new ownership group or pay down expensive debt, that should improve run rate profitability in the coming quarters. Speaker 400:23:41And hopefully, that's it's again, it's sort of hard to predict as to where that's going to shake out and when, but we feel pretty good about the overall trajectory. Speaker 500:23:49Okay. And do I have the math right here? It seems that you've got about maybe it was a comment that Jack made, but I wrote down $100,000,000 of realized losses over the next period, whether that was the next year or whatever, 51,000,000 shares, dollars 2 of hit to distributable EPS from your current expected losses in your loans that you're carrying at 5 rated or whatever. Does that range of something in the neighborhood of a $2 share impact to DE over loss realizations? Does that job with where you see your portfolio and your reserves? Speaker 400:24:40Yes, I think that's right. I think I said it's over 1 hundred anticipate over $100,000,000 in the coming quarters. We have the 2 resolutions in Q3 already. We are fully reserved on the B note on that Pittsburgh asset, which we anticipate may get written off as well. So between that and the L. Speaker 400:24:59A. Office retail, that's somewhere around $40,000,000 already. And I think as you heard, Jack and Steve mentioned, the additional visibility will likely add to that. So depending on timing and when these deals can close, it could be north of $100,000,000 by the end of the year. But exactly, whether it's Q3 or Q4, it's sort of hard to predict, but I think you're roughly in the neighborhood. Speaker 500:25:27Got it. Well, I think you guys are working through it and do the best you can. In the meantime, appreciate the effort towards helping shareholders add a little bit with the stock buyback. I think that's a nice balance to your asset resolution efforts internally. So thanks for your comments. Speaker 400:25:48Thank you. Appreciate it. Speaker 100:25:51Thank you. Our next question comes from the line of Doug Harter with UBS. Please proceed with your questions. Speaker 600:25:58Thanks. I believe in the prepared remarks you said you're seeing greater transparency around property pricing. Could you just talk about your comfort in being able to resolve your loans at or near the marks, kind of given that improving transparency on price? Speaker 400:26:19Sure. Good morning, Doug. Thank you for joining us. Thanks for your question. Look, I think we feel pretty good as we sort of go through the process and there's more visibility and more transparency. Speaker 400:26:28We obviously try to be proactive with respect to some of these reserves as some of these assets go through the process. I think generally, we're not knowing this market is going to be 100% correct on these marks, but we feel pretty good about where we are sort of in the near term for some the assets that we have in the pipeline to hopefully resolve by the end of the year. Speaker 600:26:52Great. And then, Jack, I know you said that there still could be kind of one off new problem assets. Can you just help us get comfort in the fact that kind of the current risk ratings kind of have your arms around the problems and as we look to kind of see the pace of new problem asset formation flow? Speaker 200:27:18Yes. You, Doug, and thanks for joining us. We are comfortable with the current risk ratings. And in fact, I would say we've been on forward foot in terms of moving things from a 4 to a 5. And we're looking at the overall environment that makes us still be circumspect about what's to come. Speaker 200:27:41We think things are improving. We think that the market and our own portfolio is towards the end of this stress period and we're emerging into greater liquidity in the market as well as greater price transparency because the transaction volume is picking up. That's not to say that we won't have some additional loans that move into the 4 category or down to a 5 category. But I will say with respect to the 4s, those are some that we expect that we'll see a full payoff for some of them. And we may see some migrate to 5 as we did with the Denver office loan. Speaker 200:28:32And we are not sure I don't know if that's responsive to you. I hope it is. Speaker 600:28:48It is. Thank you, Jack. It is. Thank you, Jack. Speaker 200:28:50Thank you. Speaker 100:28:55Thank you. Our next questions come from the line of Stephen Laws with Raymond James. Please proceed with your questions. Speaker 700:29:07Hi, good morning. I wanted to follow-up on a couple of Steve Delaney's questions. First, as you think about the non accrual loans, I think you mentioned $15,000,000 and $0.30 drag. I was curious how much financing do you currently have on those loans and what would the rate be on that cost of debt? Speaker 400:29:32Good morning, Stephen. Thanks for joining us. Thank you for your question. So it really depends on which asset it is. They are mainly financed through a variety of different sources. Speaker 400:29:43We obviously have the NPL line that you can see in our filings that we have been utilizing. That's sort of $650 over sulfur. Obviously, that's expensive, but it's a good liquidity tool for us. Some of the other assets are on different facilities. So they are generally financed to varying degrees, while the REO is currently unlevered. Speaker 400:30:10But as I said earlier, we will we intend to finance them as well just to increase liquidity and give us some more flexibility going forward. Speaker 700:30:17And so when we think about use of liquidity or proceeds as these resolutions occur, is it fair to say that that's probably where Speaker 300:30:24you get the biggest bang for Speaker 700:30:25your buck is paying down the financing on those non accrual facilities and that's what's going to drive any near term improvements in profitability? Speaker 400:30:35I think it's either that or if the collateral property on a loan gets sold, so that then we would sort of pay off the financing. Or if we provide financing to the new ownership group, which we've done in the past, it'll most likely be from sort of interest income on the new asset and that way we may choose to finance it more efficiently. So it's going to be a variety of different tools depending on which direction some of these assets go. Speaker 700:31:06Great. Like you can see my notes because that's my next question is, how are you thinking about providing financing on the loans? I think if I heard correctly that the two resolutions that took place in Q2, you did not provide financing to the buyers of those assets. So curious kind of how do you guys make that decision? Are there certain assets that you're more likely to stay attached to, other assets maybe that you don't want to lend against going forward? Speaker 700:31:30Kind of how do you guys make that decision? And how much more difficult is it to do a resolution when you're not willing to provide financing to the buyer? Speaker 300:31:41Hey, Steve. Good morning. It's Steve Alpart. Thanks for joining. I'll take that one. Speaker 300:31:45It really depends on the specific asset. As you heard on the call this morning, some of these have resolved without Staple Financing and some of them will need to resolve with Staple Financing. It will always be asset by asset decision. But for the office assets, it will be very typical that we would consider or need to provide stable financing. Now that won't always be the case. Speaker 300:32:13We talked about the LA mixed use office and retail asset and that was an all cash buyer, no stable financing, both of the other cases where we may need to provide stable financing. So it always be case by case. But in general, I would say it will be more likely on some of the office assets. Speaker 700:32:34Great. Appreciate the comments this morning. Thank you. Speaker 100:32:39Thank you. Our next questions come from the line of Jade Rahmani with KBW. Please proceed with your questions. Speaker 800:32:47Thank you. The non accruals in the 10 Q show up as $453,000,000 while the collateral dependent loans are $545,000,000 Do you happen to know what the difference is? Speaker 400:33:02I think that may be carrying value on the non accruals, ex the reserves, I think that's the difference. The balance of the non accruals is about $660,000,000 as I mentioned in my prepared remarks. Speaker 800:33:14Okay. Thanks a lot. That makes sense. I guess just the realized losses that you identified, is the preponderance of those already reflected in book value? Could you give a sense as to where you expect book value to trough? Speaker 400:33:36Yes, that's a good question. The numbers that we cited are reserved for already. So the realized losses, we feel pretty good about those reserves. Again, there may be some adjustments, some minor adjustments as these loans sort of get to the finish line. I think it's hard to sort of predict where book value might be sort of generally in this type of market. Speaker 400:34:03If you recall, Jack mentioned there may be some additional credit migration. I think we generally feel pretty good about where we are. I don't think this cycle is over, but I think we are encouraged by slower pace of credit migration. And as we said in the prepared remarks, we feel like the balance of the CECL reserve should trend down from here. But again, there may be some one offs here and there going forward. Speaker 400:34:28It's hard to predict. Speaker 800:34:32Thank you very much. Speaker 100:34:35Thank you. Thank you. There are no further questions at this time. I'd now like to hand the call back over to Jack Taylor for any closing comments. Speaker 200:34:43Well, thank you everybody for participating in our call. We want to thank you for your continued support. And as I would be quick to say and also to the team all the hard work that they're doing through this challenging period where we're making very good progress and have some more wood to shop and we're confident that we'll get there. Thank you, everybody. Speaker 100:35:07Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your Speaker 800:35:19day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallGranite Point Mortgage Trust Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Granite Point Mortgage Trust Earnings HeadlinesGranite Point Mortgage price target lowered to $2.50 from $3.50 at UBSApril 17, 2025 | markets.businessinsider.comGranite Point Mortgage price target lowered to $2.50 from $2.75 at Keefe BruyetteApril 8, 2025 | markets.businessinsider.comTrump Treasure April 19Thanks to President Trump… A $900 investment across5 specific cryptos… Could gain 12,000% so quickly that, just 12 months later…April 28, 2025 | Paradigm Press (Ad)Granite Point Mortgage: Definitely Not Out Of The Woods YetMarch 14, 2025 | seekingalpha.comGranite Point Mortgage Trust Inc. 7% FLTG PFD SR A declares $0.4375 dividendMarch 14, 2025 | seekingalpha.comGranite Point Mortgage Trust Inc. Announces First Quarter 2025 Common and Preferred Stock ...March 13, 2025 | gurufocus.comSee More Granite Point Mortgage Trust Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Granite Point Mortgage Trust? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Granite Point Mortgage Trust and other key companies, straight to your email. Email Address About Granite Point Mortgage TrustGranite Point Mortgage Trust (NYSE:GPMT), a real estate investment trust, originates, invests in, and manages senior floating-rate commercial mortgage loans, and other debt and debt-like commercial real estate investments in the United States. The company provides intermediate-term bridge or transitional financing for various purposes, including acquisitions, recapitalizations, and refinancing, as well as a range of business plans, including lease-up, renovation, repositioning, and repurposing of the commercial property. The company qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. 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There are 9 speakers on the call. Operator00:00:00Good morning. Speaker 100:00:00My name is Daryl and I will be your conference facilitator. At this time, I would like to welcome everyone to the Granite Point Mortgage Trust Second Quarter 2024 Financial Results Conference Call. All participants will be in a listen only mode. After the speakers' remarks, there will be a question and answer period. Please note today's call is being recorded. Speaker 100:00:20I would now like to turn the call over to Chris Petta, sorry, Investor Relations for Granite Point. Operator00:00:28Thank you, and good morning, everyone. Thank you for joining our call to discuss Granite Point's Q2 2024 Financial Results. With me on the call this morning are Jack Taylor, our President and Chief Executive Officer Marcin Urbaszek, our Chief Financial Officer Steve Alpart, our Chief Investment Officer and Co Head of Originations Peter Morel, our Chief Development Officer and Co Head of Originations and Steve Pluss, our Chief Operating Officer. After my introductory comments, Jack will provide a brief recap of market conditions and review our current business activities. Steve Alpart will discuss our portfolio and Marcin will highlight key items from our financial results and capitalization. Operator00:01:05The press release, financial tables and earnings supplemental associated today's call were filed yesterday with the SEC and are available in the Investor Relations section of our website, along with our Form 10 Q. I would like to remind you that remarks made by management during this call and the supporting slides may include forward looking statements, which are uncertain and outside of the company's control. Forward looking statements reflect our views regarding future events and are subject to uncertainties that could cause actual results to differ materially from expectations. Please see our filings with the SEC for a discussion of some of our risks that could affect results. We do not undertake any obligation to update any forward looking statements. Operator00:01:44We will also refer to certain non GAAP measures on this call. This information is not intended to be considered in isolation or a substitute for the financial information presented in accordance with GAAP. A reconciliation of these non GAAP financial measures to the most comparable GAAP measures can be found in our earnings release and slides, which are available on our website. I will now turn the call over to Jack. Speaker 200:02:09Thank you, Chris, and good morning, everyone. We would like to welcome you and thank you for joining us for Granite Point's 2nd quarter 2024 earnings call. The first half of twenty twenty four has been characterized by macroeconomic uncertainty, including volatility and uncertainty about the path of interest rates, which in turn has continued to impact transaction activity in the commercial real estate market. More recently, however, consensus has been building about the potential for the Fed to begin reducing short term rates in the coming months, which was bolstered by the Fed meeting last week and solidified even further by the weak employment report in the market reaction. Expectations over the last few months has led to improving confidence in the real estate market and a market pickup in transaction activity though remains well below historical levels. Speaker 200:03:04Securitization funding markets for stabilized properties have seen increased activity this year, while liquidity for transitional assets is slowly returning. As transaction flows continue to improve, we're seeing some more market transparency around property valuations. We believe that the move away from the sharply negative sentiment in the market that occurred in March April, following the substantial rise in interest rates at the end of the Q1, We'll continue to improve the overall level of real estate transaction activity, while property valuations continue their bottoming process. These trends are beginning to play out in our portfolio with recent resolutions of assets and more on the horizon in the coming months and quarters, as well as a step up in anticipated loan repayments. Our proactive approach to asset management has resulted in meaningful progress and that we resolved 4 non accrual loans over the last couple of months with an aggregate principal balance of over $135,000,000 each involving a different strategy in order to drive the best possible outcome for the company. Speaker 200:04:15We are actively pursuing resolutions of the remaining non accrual loans, which are in various stages of their respective processes. We have visibility on approximately $200,000,000 to $300,000,000 of more loan outcomes remain difficult to predict given the nature of such transactions and market uncertainty. However, we are encouraged by the progress continue to make on these assets given their pressure on our run rate profitability. Our approach to non accrual resolutions emphasizes a balance between timing, potential earnings and book value impacts, liquidity needs and other factors, while we work to maximize economic outcomes and best position the company for long term success. Improved visibility regarding the future path of interest rates is likely to be the main factor affecting the activity and the performance of the commercial real estate floating rate loan market in the near to medium term. Speaker 200:05:18A higher level of real estate investor confidence around the cost of capital and price discovery on property values should continue to drive deployment of capital into this market, including the large amount of dry powder that is still on the sidelines, improving overall liquidity. As we progress towards additional non accrual loan resolutions over the next quarters, we have increased our CECL reserves to reflect the ongoing pressure on property values. We have been proactive in identifying potential credit issues and building loan loss reserves ahead of the potential charge offs as market trends continue to evolve with more price discovery and as visibility improves based on the resolution progress of individual assets. We are encouraged by the meaningfully slower pace of credit migration within the portfolio in the resulting in stable risk ratings quarter over quarter. We believe we are getting closer to the end of this period of extreme market stress and further potential credit issues within the sector and in our portfolio. Speaker 200:06:23Nonetheless, while the market tone has been improving of and transaction activity picking up, given how volatile and unpredictable this cycle has been, the risk remains for select additional credit migration and incremental credit loss provisions. However, given our recent experience and our outlook on non accrual loan resolutions, the level of our total CECL reserves should decline in the coming quarters. As we see markets stabilizing and capital slowly returning to the floating rate transitional space, we remain highly focused on our asset and liquidity management activities while moving through this credit cycle. Repositioning our portfolio over time will position us to return to our core lending business and regrow the portfolio while improving run rate profitability. At the same time, we have maintained our flexible capital allocation strategy focused on relative value and generating attractive total shareholder returns over the long term. Speaker 200:07:20As such in June, our Board of Directors decided to reduce our quarterly common dividend to $0.05 per share to protect investors' capital considering the challenging credit environment and the near term pressure on our earnings. Because the company's public market valuation presents a compelling relative value, during the Q2, we repurchased about $1,500,000 of our common shares at a deep discount, which benefited our book value by about $0.05 per share. We currently have about 3,600,000 common shares remaining under the current share repurchase authorization and we intend to remain opportunistic with respect to any potential future buyback activity taking into considerations market valuation, liquidity, leverage and portfolio performance among other factors. We believe that accretive share repurchases during times of deeply discounted market valuation are a prudent way to generate attractive total economic returns over time. We firmly believe that during challenging periods emphasizing balance sheet stability and protecting our investors' capital is the prudent and effective strategy to drive long term shareholder returns, while continuing to reposition the business for future growth opportunities. Speaker 200:08:34As we look out into the next few quarters, expected interest rate reductions are likely to contribute to the ultimate recovery of the commercial real estate market. We will continue to proactively asset manage our portfolio and emphasize our liquidity, while driving further loan repayments and non accrual resolutions, which will significantly contribute to improving our run rate profitability and position us to take advantage of attractive investment opportunities in the future. I would now like to turn the call over to Steve Alpart to discuss our portfolio activities in more detail. Speaker 300:09:09Thank you, Jack, and thank you all for joining our call this morning. Since our last call, we've seen some increased transaction activity and improved liquidity and are beginning to see capital slowly returning to transitional assets. Improved market sentiment has contributed better visibility on certain loan repayments and progress on non accrual resolutions. During the Q2, we realized about $56,000,000 of net repayments and paydowns, while resolving 2 non accrual loans totaling about $47,000,000 in UPB. Since quarter end, we've realized an additional $143,000,000 of repayments, including a $54,000,000 office loan from rate CMBS refinancing, and I resolved 2 additional non accrual loans with an aggregate UPB of about 88,000,000 dollars We've used a number of different strategies to resolve assets, while balancing multiple objectives to achieve the best economic outcomes. Speaker 300:10:14The $12,000,000 loan secured by the multifamily property located in Milwaukee was repaid during the Q2 at a small loss and around our carrying value. We worked collaboratively with the borrower over several quarters to effectuate a successful sale of the property without having to provide seller financing to the buyer. Also during the Q2, we acquired title to an office property located in suburban Boston, which had previously secured a $36,000,000 senior loan. The asset was transferred to REO at the loan's carrying value, and the property is generating positive cash flow. We believe there is embedded value in the property with attractive optionality for alternative uses for parts of the building and development opportunity related to excess land. Speaker 300:11:07Since quarter end, we have resolved 2 additional loans totaling 88,000,000 the $37,000,000 non accrual loan secured by a mixed use office and retail property located in Downtown Los Angeles. This transaction also involved our coordination with the borrower to sell the collateral property for cash without providing acquisition financing. The loan was unlevered and resulted in a positive liquidity event for the company. Also in July, we restructured the $51,000,000 senior loan collateralized by a mixed use multifamily office and event space building located in Pittsburgh. The property is well located with many attractive attributes. Speaker 300:11:53However, the performance of the office and multifamily components have been impacted by weakness in the technology sector, which has a large presence in the local market. The modification included a bifurcation of the loan into a new $32,000,000 mortgage loan and a $19,000,000 mezzanine loan with the sponsor committing additional capital to further support and improve the collateral property. We're very pleased with the progress we've been making to resolve our credit impacted loans. As Jack stated earlier, we have visibility on additional resolutions in the near term with 7 of the 8 remaining risk rated 5 loans in various stages of their individual sale processes, though the exact timing is hard to predict. The mixed use office and retail property securing our $94,000,000 loan in New York is likely to be under our sales contract soon with an anticipated closing during the Q4. Speaker 300:12:47The mixed use retail and office property collateralizing the $82,000,000 loan in Baton Rouge is in a sales process. And though the ultimate timing remains hard to predict, we hope to reach a potential resolution in the coming months. Similarly, coordinated sales processes are ongoing for the $26,000,000 loan secured by the office property in Boston, the $29,000,000 loan securing the Minneapolis Hotel and the $34,000,000 2nd quarter, we experienced relatively limited credit migration within the loan portfolio, with $120,000,000 loan collateralized by an office property in Denver moved from a risk rating of 4 to a rating of 5. The property has been negatively impacted by local market office leasing dynamics, and the sponsor is in the initial stages of marketing the property for sale. In addition, we also downgraded 2 other loans, one office and one hotel, with an aggregate UPB of about $82,000,000 to a risk rating of 4, as the collateral properties have been impacted by varying degrees by leasing challenges and limited market liquidity. Speaker 300:14:01The portfolio the loan portfolio risk ratings remained stable quarter over quarter. We're encouraged by the progress we've made so far addressing the non accrual loans and are pleased to see that most of our high quality institutional sponsors continue to support their properties and are progressing on their business plans and what we expect to be a slowly improving market. We ended the 2nd quarter with total loan portfolio commitments of 2 point $7,000,000,000 and an outstanding principal balance of about $2,600,000,000 with about $118,000,000 of future fundings, which account for only about 4% of total commitments. Our loan portfolio remains well diversified across regions and property types and includes 68 loan investments with an average size of about $38,000,000 and a weighted average LTV stabilized LTV at origination of 63.7%. Our realized loan portfolio yield for the 2nd quarter was about 7%, net of the impact of the non accrual loans, which we estimate to be approximately 2 29 basis points for the 3 months ended June 30. Speaker 300:15:06During the quarter, we funded about $17,000,000 of existing loan commitments and upsizes and realized about $104,000,000 of UPB loan repayments, paydowns, amortization and resolutions. So far in the 3rd quarter, we have funded about $3,000,000 of existing loan commitments and realized about $143,000,000 of loan repayments, paydowns and loan resolutions. Given current market conditions, we expect the volume of loan repayments and resolutions in the second half of twenty twenty four to be higher than what we realized during the 1st 6 months of the year. We expect our loan portfolio balance to trend lower by the end of the year as we maintain our conservative stance and continue emphasizing carrying higher levels of liquidity and working diligently to resolve our non accrual loans. I will now turn the call over to Marcin for a more detailed review of our financial results and capitalization. Speaker 400:16:03Thank you, Steve. Good morning, everyone, and thank you for joining us today. Yesterday afternoon, we reported a 2nd quarter GAAP net loss of $66,700,000 or $1.31 per basic share, which includes a provision for credit losses of $60,800,000 or $1.19 per basic share, mainly related to certain risk rated 5 loans. Distributable loss for the quarter was $9,100,000 or $0.18 per basic share, reflecting loan write offs of $6,600,000 or $0.13 per basic share and a decline in net interest income mainly driven by non accrual loans. Our book value at June 30 was $9.84 per common share, a decline of about $1.30 per share from Q1, which was primarily due to loan loss provision mentioned earlier, partially offset by the accretive share buybacks we opportunistically executed during the quarter, which we estimate benefited book value by about 0 point $5 per common share. Speaker 400:17:09The 2 small write offs this quarter were related to the resolution of our multifamily loan in Milwaukee and a modification of our loan secured by a design building in New York, which created a small mezzanine note we deemed uncollectible. For more details on this modification, please refer to our Form 10 Q. Given our outlook on the potential near term nonaccrual resolutions Jack discussed earlier, we anticipate incurring over $100,000,000 of write offs over the next couple of quarters, which should reduce our overall CECL reserve balance. Our operating results continue to be pressured by the non accrual loans, which accounted for over 20% of our portfolio as of quarter end. Some of these loans are on cost recovery and any incoming interest is applied to reduced loan principal rather than being recognized in earnings. Speaker 400:18:01We anticipate the run rate profitability of the company to improve in the coming quarters as we continue to make progress on resolving non earning assets, though the exact timing and magnitude remain difficult to predict. Our CECL reserve at quarter end was about $267,000,000 or 5.2 $7 per share, representing 9.7 percent of our portfolio commitments as compared to $213,000,000 or 7.5 percent of total commitments last quarter. The change in our CECL reserve was mainly related to the additional allowance on loans that were risk weighted 5, reflecting additional pressure on property values and increased pricing transparency in the market as transaction volumes and the pace of our resolutions begins to pick up. Our Q2 general reserve increased by about $14,000,000 due to some macro assumptions, expectations for ongoing challenges in the CRE market and certain loan specific assumptions. Over 70% of our total CECL reserve or $195,000,000 is allocated to individually assessed loans, which implies an average estimated loss severity of about 36% on those assets. Speaker 400:19:18As of quarter end, we had about $665,000,000 of loans on non accrual status, which we estimate impacted our Q2 results by about $15,000,000 or approximately $0.30 per share. Turning to liquidity and capitalization, we ended the quarter with about $86,000,000 of unrestricted cash and total leverage increased modestly to 2.5 times in Q2 compared to 2.3 times in Q1 mainly due to a lower equity balance as a result of the higher CECL reserves. During the quarter, we extended the maturity of our Morgan Stanley facility and adjusted its maximum borrowing capacity to better reflect our near to medium term financing needs. We also elected to terminate our Goldman Sachs funding facility, which matured in July as it had no outstanding borrowings and we anticipated limited use in the near term. We continue to enjoy strong support from our lenders, highlighting our long standing relationships in the market, and we expect to expand our financing once we return to originating new loans more actively. Speaker 400:20:25As of a few days ago, we carried about $92,000,000 in cash, which we expect to increase in the coming weeks, driven by some loan repayment activity and the planned financing of the 2 REO assets that are currently unlevered. We remain focused on maintaining high level of liquidity in the near to medium term. We will continue to prioritize financial flexibility and the ability to proactively manage our assets as we simultaneously transition the portfolio to position the company for future growth opportunities. I would like to thank you again for joining us today, and we will now open the call for questions. Speaker 100:21:02Thank you. We will now be conducting a question and answer session. Our first questions come from line of Steve DeLaney with Citizens JMP. Please proceed Speaker 200:21:34with your question. Speaker 500:21:36Hello, everyone, and thank you for taking the question. I guess, clearly, obviously, you're in a defensive mode and that we certainly understand that and appreciate that. The loan portfolio is in runoff, whether it's repayments, which I think you probably welcome right now or moving loans into REO and then trying to dispose of that. But $2,600,000,000 I believe, Marcin, at the end of June, As you guys look out the second half of the year, any sense and I realize I'm asking you for a rough estimate, where might the loan portfolio bottom out? As I'm trying to sense, I'm thinking that maybe distributable EPS, we'd love to see that turn around and be breakeven or positive. Speaker 500:22:25But it feels like that's going to be hard to do with a shrinking loan portfolio. Just would welcome any of your comments on that particular topic. Thank Speaker 400:22:41you. Good morning, Steve. Thank you for the question. Sure. Look, I think it's difficult to sort of predict exactly where things are going to be. Speaker 400:22:50I think as you mentioned, we are sort of maintaining our conservative stance as we sort of resolve these assets and manage REO. I think Steve Alpar mentioned in his prepared remarks that we anticipate portfolio to sort of trend down by the end of the year. I think some of the resolutions will have a positive impact on run rate profitability. I think in the near term, I think distributive EPS sort of run rate ex losses will probably trail the dividend a little bit. But as these resolutions happen in whatever shape or form they may happen, whether it's REO that's cash flow positive or we provide seller financing on a new to a new shareholder to a new ownership group or pay down expensive debt, that should improve run rate profitability in the coming quarters. Speaker 400:23:41And hopefully, that's it's again, it's sort of hard to predict as to where that's going to shake out and when, but we feel pretty good about the overall trajectory. Speaker 500:23:49Okay. And do I have the math right here? It seems that you've got about maybe it was a comment that Jack made, but I wrote down $100,000,000 of realized losses over the next period, whether that was the next year or whatever, 51,000,000 shares, dollars 2 of hit to distributable EPS from your current expected losses in your loans that you're carrying at 5 rated or whatever. Does that range of something in the neighborhood of a $2 share impact to DE over loss realizations? Does that job with where you see your portfolio and your reserves? Speaker 400:24:40Yes, I think that's right. I think I said it's over 1 hundred anticipate over $100,000,000 in the coming quarters. We have the 2 resolutions in Q3 already. We are fully reserved on the B note on that Pittsburgh asset, which we anticipate may get written off as well. So between that and the L. Speaker 400:24:59A. Office retail, that's somewhere around $40,000,000 already. And I think as you heard, Jack and Steve mentioned, the additional visibility will likely add to that. So depending on timing and when these deals can close, it could be north of $100,000,000 by the end of the year. But exactly, whether it's Q3 or Q4, it's sort of hard to predict, but I think you're roughly in the neighborhood. Speaker 500:25:27Got it. Well, I think you guys are working through it and do the best you can. In the meantime, appreciate the effort towards helping shareholders add a little bit with the stock buyback. I think that's a nice balance to your asset resolution efforts internally. So thanks for your comments. Speaker 400:25:48Thank you. Appreciate it. Speaker 100:25:51Thank you. Our next question comes from the line of Doug Harter with UBS. Please proceed with your questions. Speaker 600:25:58Thanks. I believe in the prepared remarks you said you're seeing greater transparency around property pricing. Could you just talk about your comfort in being able to resolve your loans at or near the marks, kind of given that improving transparency on price? Speaker 400:26:19Sure. Good morning, Doug. Thank you for joining us. Thanks for your question. Look, I think we feel pretty good as we sort of go through the process and there's more visibility and more transparency. Speaker 400:26:28We obviously try to be proactive with respect to some of these reserves as some of these assets go through the process. I think generally, we're not knowing this market is going to be 100% correct on these marks, but we feel pretty good about where we are sort of in the near term for some the assets that we have in the pipeline to hopefully resolve by the end of the year. Speaker 600:26:52Great. And then, Jack, I know you said that there still could be kind of one off new problem assets. Can you just help us get comfort in the fact that kind of the current risk ratings kind of have your arms around the problems and as we look to kind of see the pace of new problem asset formation flow? Speaker 200:27:18Yes. You, Doug, and thanks for joining us. We are comfortable with the current risk ratings. And in fact, I would say we've been on forward foot in terms of moving things from a 4 to a 5. And we're looking at the overall environment that makes us still be circumspect about what's to come. Speaker 200:27:41We think things are improving. We think that the market and our own portfolio is towards the end of this stress period and we're emerging into greater liquidity in the market as well as greater price transparency because the transaction volume is picking up. That's not to say that we won't have some additional loans that move into the 4 category or down to a 5 category. But I will say with respect to the 4s, those are some that we expect that we'll see a full payoff for some of them. And we may see some migrate to 5 as we did with the Denver office loan. Speaker 200:28:32And we are not sure I don't know if that's responsive to you. I hope it is. Speaker 600:28:48It is. Thank you, Jack. It is. Thank you, Jack. Speaker 200:28:50Thank you. Speaker 100:28:55Thank you. Our next questions come from the line of Stephen Laws with Raymond James. Please proceed with your questions. Speaker 700:29:07Hi, good morning. I wanted to follow-up on a couple of Steve Delaney's questions. First, as you think about the non accrual loans, I think you mentioned $15,000,000 and $0.30 drag. I was curious how much financing do you currently have on those loans and what would the rate be on that cost of debt? Speaker 400:29:32Good morning, Stephen. Thanks for joining us. Thank you for your question. So it really depends on which asset it is. They are mainly financed through a variety of different sources. Speaker 400:29:43We obviously have the NPL line that you can see in our filings that we have been utilizing. That's sort of $650 over sulfur. Obviously, that's expensive, but it's a good liquidity tool for us. Some of the other assets are on different facilities. So they are generally financed to varying degrees, while the REO is currently unlevered. Speaker 400:30:10But as I said earlier, we will we intend to finance them as well just to increase liquidity and give us some more flexibility going forward. Speaker 700:30:17And so when we think about use of liquidity or proceeds as these resolutions occur, is it fair to say that that's probably where Speaker 300:30:24you get the biggest bang for Speaker 700:30:25your buck is paying down the financing on those non accrual facilities and that's what's going to drive any near term improvements in profitability? Speaker 400:30:35I think it's either that or if the collateral property on a loan gets sold, so that then we would sort of pay off the financing. Or if we provide financing to the new ownership group, which we've done in the past, it'll most likely be from sort of interest income on the new asset and that way we may choose to finance it more efficiently. So it's going to be a variety of different tools depending on which direction some of these assets go. Speaker 700:31:06Great. Like you can see my notes because that's my next question is, how are you thinking about providing financing on the loans? I think if I heard correctly that the two resolutions that took place in Q2, you did not provide financing to the buyers of those assets. So curious kind of how do you guys make that decision? Are there certain assets that you're more likely to stay attached to, other assets maybe that you don't want to lend against going forward? Speaker 700:31:30Kind of how do you guys make that decision? And how much more difficult is it to do a resolution when you're not willing to provide financing to the buyer? Speaker 300:31:41Hey, Steve. Good morning. It's Steve Alpart. Thanks for joining. I'll take that one. Speaker 300:31:45It really depends on the specific asset. As you heard on the call this morning, some of these have resolved without Staple Financing and some of them will need to resolve with Staple Financing. It will always be asset by asset decision. But for the office assets, it will be very typical that we would consider or need to provide stable financing. Now that won't always be the case. Speaker 300:32:13We talked about the LA mixed use office and retail asset and that was an all cash buyer, no stable financing, both of the other cases where we may need to provide stable financing. So it always be case by case. But in general, I would say it will be more likely on some of the office assets. Speaker 700:32:34Great. Appreciate the comments this morning. Thank you. Speaker 100:32:39Thank you. Our next questions come from the line of Jade Rahmani with KBW. Please proceed with your questions. Speaker 800:32:47Thank you. The non accruals in the 10 Q show up as $453,000,000 while the collateral dependent loans are $545,000,000 Do you happen to know what the difference is? Speaker 400:33:02I think that may be carrying value on the non accruals, ex the reserves, I think that's the difference. The balance of the non accruals is about $660,000,000 as I mentioned in my prepared remarks. Speaker 800:33:14Okay. Thanks a lot. That makes sense. I guess just the realized losses that you identified, is the preponderance of those already reflected in book value? Could you give a sense as to where you expect book value to trough? Speaker 400:33:36Yes, that's a good question. The numbers that we cited are reserved for already. So the realized losses, we feel pretty good about those reserves. Again, there may be some adjustments, some minor adjustments as these loans sort of get to the finish line. I think it's hard to sort of predict where book value might be sort of generally in this type of market. Speaker 400:34:03If you recall, Jack mentioned there may be some additional credit migration. I think we generally feel pretty good about where we are. I don't think this cycle is over, but I think we are encouraged by slower pace of credit migration. And as we said in the prepared remarks, we feel like the balance of the CECL reserve should trend down from here. But again, there may be some one offs here and there going forward. Speaker 400:34:28It's hard to predict. Speaker 800:34:32Thank you very much. Speaker 100:34:35Thank you. Thank you. There are no further questions at this time. I'd now like to hand the call back over to Jack Taylor for any closing comments. Speaker 200:34:43Well, thank you everybody for participating in our call. We want to thank you for your continued support. And as I would be quick to say and also to the team all the hard work that they're doing through this challenging period where we're making very good progress and have some more wood to shop and we're confident that we'll get there. Thank you, everybody. Speaker 100:35:07Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your Speaker 800:35:19day.Read morePowered by