Granite Point Mortgage Trust Inc. (GPMT) is a commercial real estate finance company that primarily focuses on originating, investing in, and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments. The company has gone through a challenging period, marked by significant credit issues and portfolio resolutions, but it appears to be making progress in navigating these obstacles and positioning itself for a potential turnaround.
Business Overview and History
Granite Point was incorporated in Maryland on April 7, 2017, and commenced operations as a publicly traded company on June 28, 2017. The company has elected to be treated as a real estate investment trust (REIT) for U.S. federal income tax purposes. Granite Point's investment objective is to preserve stockholders' capital while generating attractive risk-adjusted returns, primarily through dividends derived from current income produced by its investment portfolio.
In June 2017, the company completed its initial public offering, raising net proceeds of $188.5 million. This capital allowed Granite Point to launch its business model of originating, investing in, and managing a portfolio of commercial real estate loans. Over the next several years, the company steadily grew its portfolio through disciplined underwriting and leveraged its relationships to source attractive lending opportunities.
A key milestone for Granite Point came in 2021 when it issued 7.00% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, raising net proceeds of $198 million. This provided additional capital to fund the company's investment activities and growth. Around this time, Granite Point also began financing its loan portfolio through commercial real estate collateralized loan obligations (CRE CLOs), diversifying its funding sources.
The company's loan portfolio has been heavily weighted towards senior floating-rate commercial mortgage loans, which accounted for approximately 96.7% of its total loan portfolio by principal balance as of September 30, 2024. Granite Point's loan investments are diversified across various property types and geographic regions, with the largest exposures being to office (45.0%), multifamily (29.8%), and retail (10.4%) properties, primarily located in the Northeast (23.9%), Southwest (22.3%), and Southeast (23.4%) regions of the United States.
Despite Granite Point's progress, the company faced challenges in recent years as the commercial real estate market grappled with the impacts of the COVID-19 pandemic and broader macroeconomic volatility. The company navigated a rise in nonperforming loans, requiring it to take significant provisions for credit losses and write-downs. This pressured Granite Point's financial performance and book value during this period.
Granite Point's portfolio has faced significant challenges in recent years, with the company reporting a GAAP net loss of $207.1 million, or $4.39 per share, for the full year 2024. This was largely driven by a provision for credit losses of $164.2 million, as well as $51.2 million in loan write-offs during the year. As of December 31, 2024, the company had seven loans, with a total unpaid principal balance of $453 million, on nonaccrual status and rated as a '5' on its internal risk rating scale.
Financial Performance and Liquidity
Granite Point's financial performance has been heavily impacted by the credit issues in its loan portfolio. For the fourth quarter of 2024, the company reported a GAAP net loss of $42.4 million, or $0.86 per basic common share, which included a $37.2 million provision for credit losses and $95.2 million in loan write-offs. The company's book value per common share declined from $9.25 as of September 30, 2024, to $8.47 as of December 31, 2024, primarily due to the credit-related charges.
Revenue for the most recent quarter was $38,720,000, with a net income of -$42,437,000. The company reported an operating cash flow (OCF) of $30,000 and a free cash flow (FCF) of -$771,000 for the quarter.
On a more positive note, Granite Point's liquidity position remained relatively stable, with $88 million in unrestricted cash as of the end of 2024. The company's total leverage ratio was 2.2x as of December 31, 2024, unchanged from the prior quarter. Granite Point's financing sources remain well-diversified, including repurchase facilities, securitized debt obligations (CRE CLOs), and a secured credit facility. The company has a secured credit facility with $100 million of total capacity, of which $85.2 million was outstanding at quarter-end.
Portfolio Management and Credit Quality
Resolving the company's nonperforming loans has been a top priority for Granite Point's management team. During 2024, the company successfully resolved nine loans totaling $344 million in unpaid principal balance, with several more resolutions either closed or well underway in 2025. These resolutions have been achieved through a variety of strategies, including loan sales, property sales, and loan modifications.
As of December 31, 2024, Granite Point had seven loans, with a total unpaid principal balance of $453 million, on nonaccrual status and rated as a '5' on the company's internal risk rating scale. Management has indicated that it expects to resolve most of these remaining '5' rated loans during the next few quarters.
The company's overall portfolio weighted average risk rating remained stable at 3.1% as of the end of 2024. Granite Point's realized loan portfolio yield for the fourth quarter was approximately 6.6%, net of the impact of nonaccrual loans, which the company estimates to be around 214 basis points.
Product Segments
Granite Point operates primarily in two main product segments: Loans Held-for-Investment and Real Estate Owned (REO).
Loans Held-for-Investment Segment As of September 30, 2024, Granite Point's loan portfolio consisted of 62 investments, with 61 senior first mortgage loans totaling $2.40 billion in commitments and $2.30 billion in unpaid principal balance, and one subordinated loan totaling $13.30 million in commitments and unpaid principal balance. The portfolio's weighted average risk rating was 3.10, compared to 2.80 at the end of 2023, weighted by total unpaid principal balance.
During the three months ended September 30, 2024, the company funded $9.80 million under existing loan commitments and loan upsizes, and realized $240.10 million in aggregate reductions in portfolio unpaid principal balance from loan repayments, paydowns, and amortization. The loan portfolio had a weighted average cash coupon of 3.77% and a weighted average all-in yield of 4.60%, with a stabilized loan-to-value ratio of 63.90% at origination.
Real Estate Owned (REO) Segment As a result of taking title to certain loan collateral, Granite Point owned two office properties with an aggregate carrying value of $53.60 million, inclusive of $11.00 million of intangible assets, as of September 30, 2024. During the three months ended September 30, 2024, the company recorded $3.80 million in revenue from its REO operations, compared to $1.10 million in the prior quarter, due to the first full quarter of activity on the REO acquisition that occurred on June 27, 2024.
Outlook and Conclusion
Granite Point's management team has stated that the company's primary objective is to continue resolving its nonperforming loans, which should help improve its run-rate profitability over time as it pays down expensive debt and creates more earning assets. The company also plans to opportunistically redeploy capital into new loan originations during the second half of 2025, as it expects liquidity and transaction volume in the commercial real estate market to improve throughout the year.
Management expects their run rate profitability to improve over time as they pay down expensive debt and create more earning assets through further portfolio turnover and loan resolutions. They anticipate that with further portfolio turnover through loan resolutions and repayments, they will be positioned to return to new originations in the latter part of 2025 and grow their portfolio while improving their run rate profitability, driving attractive total shareholder returns.
Granite Point currently has 5 remaining risk-rated 5 loans with a balance of $356 million, and they expect to resolve most of them during the next few quarters. The company believes they are appropriately reserved and further resolutions should meaningfully reduce their total CECL reserve balance.
While Granite Point has faced significant challenges in recent years, the company's efforts to proactively manage its portfolio and resolve nonperforming loans appear to be paying off. As the commercial real estate market continues to recover, Granite Point may be positioned to capitalize on new lending opportunities and potentially generate attractive risk-adjusted returns for its shareholders. However, the company's future performance will largely depend on its ability to navigate the ongoing credit issues in its portfolio and successfully execute its strategic initiatives.