The following discussion and analysis should be read in conjunction with the interim unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Our Company
Granite Point Mortgage Trust Inc. is an internally managed real estate finance company that focuses primarily on directly originating, investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments. Our investment objective is to preserve our stockholders' capital while generating attractive risk-adjusted returns over the long term, primarily through dividends derived from current income produced by our investment portfolio. We operate as a real estate investment trust, or REIT, as defined under the Internal Revenue Code of 1986, as amended, or the Code. We also operate our business in a manner intended to maintain our exclusion from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act. We operate our business as one segment. Recent Developments COVID-19 Pandemic As the novel coronavirus, or COVID-19, pandemic has evolved from its emergence in early 2020, so has its global impact, including contributing to significant volatility in financial markets. The longer-term macroeconomic effects of the COVID-19 pandemic on global supply chains, inflation, labor shortages and wage increases, as well as any potential fiscal and monetary policy responses, may continue to impact many industries, including those related to the collateral underlying certain of our loans. Moreover, with the potential for new strains of COVID-19 to emerge, governments and businesses may re-impose aggressive measures to help slow its spread in the future. For this reason, among others, as the COVID-19 pandemic continues, the potential global impacts are uncertain and difficult to assess. In addition, the pandemic continues to disrupt global supply chains and cause labor shortages and has added to broad inflationary pressures, all of which could negatively impact our borrowers' ability to execute on the business plans on their properties and potentially affect their ability to perform under the terms of their loan agreements. In response to the inflationary pressures, theFederal Reserve has begun raising interest rates and has indicated it anticipates further interest rate increases. Such increases in interest rates may increase our interest expense, which may not be fully offset by any increases in interest income, and may also slow the pace of loan repayments and increase the number of borrowers who seek extension of term on their loans. Interest Rates Until recently, interest rates have remained at relatively low levels and theFederal Reserve maintained the federal funds rate target range at 0.00% to 0.25% for much of 2020 and 2021. However, in response to the inflationary pressures, earlier in 2022 theFederal Reserve has begun raising its federal funds rate target range and indicated that, due to the persistent high rate of inflation, it anticipates further increases in interest rates throughout 2022 and into 2023. Additionally, driven by the shift inFederal Reserve interest rate policy, the general level of interest rates in the market has increased. Such increases in interest rates may increase our interest expense, which may not be fully offset by any increases in interest income, and may also slow the pace of loan repayments and increase the number of our borrowers who seek extension of term on their loans. The potential ultimate impact of higher market interest rates on the economy, real estate fundamentals in general and our business is uncertain and difficult to predict. LIBOR Transition OnMarch 5, 2021 , theFinancial Conduct Authority of the U.K ., or theFCA , which regulates LIBOR, announced that all LIBOR tenors relevant to us will cease to be published or will no longer be representative afterJune 30, 2023 . TheFCA announcement coincides with theMarch 5, 2021 , announcement of LIBOR's administrator, theICE Benchmark Administration Limited , or the IBA, indicating that, as a result of not having access to input data necessary to calculate LIBOR tenors relevant to us on a representative basis afterJune 30, 2023 , the IBA would have to cease publication of such LIBOR tenors immediately after the last publication onJune 30, 2023 . The United States Federal Reserve has also advised banks to cease entering into new contracts that useU.S. dollar LIBOR as a reference rate. TheFederal Reserve , in conjunction with the Alternative Reference Rate Committee, or the ARRC, a committee convened by theFederal Reserve that includes major market participants, has identified the Secured Overnight Financing Rate, or SOFR, a new index calculated by short-term repurchase agreements, backed byTreasury securities, as its preferred alternative rate for LIBOR. There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities. If our LIBOR-based borrowings are converted to SOFR, the differences between LIBOR and SOFR, and potential margin adjustments in connection with the transition, could result in higher interest costs for us, which could have a material adverse effect on our operating results. Although SOFR is the ARRC's recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in other ways that would result in higher interest costs for us. We cannot predict the effect of the decision not to sustain LIBOR, or the potential transition to SOFR or another alternative reference rate as LIBOR's replacement. 28
--------------------------------------------------------------------------------
Table of Contents As ofJune 30, 2022 , 87.8% of our loans by carrying value earned a floating rate of interest indexed to LIBOR, and 11.0% to SOFR. As ofJune 30, 2022 , 57.3% of our outstanding financing arrangements (excluding our convertible notes) bear interest indexed to LIBOR, and 42.7% to SOFR. All of these arrangements provide procedures for determining an alternative base rate when LIBOR is discontinued. As ofJune 30, 2022 , the one-month SOFR was 1.69% and one-month US LIBOR was 1.79%. Regardless, there can be no assurances as to what alternative base rates may be and whether such base rate will be more or less favorable than LIBOR and any other unforeseen impacts of the discontinuation of LIBOR. We are monitoring the developments with respect to the phasing out of LIBOR and are working with our lenders and borrowers to minimize the impact of the LIBOR transition on our financial condition and results of operations, but can provide no assurances regarding the impact of the discontinuation of LIBOR. Forward-Looking Statements This Quarterly Report on Form 10-Q contains, or incorporates by reference, not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Exchange Act of 1934, as amended, or the Exchange Act, and that are subject to the safe harbors created by such sections. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as "anticipate," "estimate," "will," "should," "expect," "target," "believe," "intend," "seek," "plan," "goals," "future," "likely," "may" and similar expressions or their negative forms, or by references to strategy, plans or intentions. By their nature, forward-looking statements speak only as of the date they are made, are not statements of historical fact or guarantees of future performance and are subject to risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify, in particular those relating to the COVID-19 pandemic. Our expectations, beliefs and estimates are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and estimates will prove to be correct or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , under the caption "Risk Factors." Other risks, uncertainties and factors that could cause actual results to differ materially from those projected are described below and may be described from time to time in reports we file with theSEC , including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Forward -looking statements speak only as of the date they are made, and we undertake no obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.
Important factors that may affect our actual results include, among others:
•the severity and duration of the ongoing COVID-19 pandemic, including new variants;
•the negative impacts related to COVID-19 on the global economy and on our financial condition, business operations and our loan portfolio, including the value of our assets, as well as the financial condition and operations of our borrowers;
•the general political, economic and competitive conditions in the markets in which we invest;
•defaults by borrowers in paying debt service on outstanding indebtedness and borrowers' abilities to manage and stabilize properties;
•our ability to obtain or maintain financing arrangements on terms favorable to us or at all;
•the level and volatility of prevailing interest rates and credit spreads;
•reductions in the yield on our investments and increases in the cost of our financing;
•general volatility of the securities markets in which we participate and the potential need to post additional collateral on our financing arrangements;
•the return or impact of current or future investments;
•changes in our business, investment strategies or target investments;
•increased competition from entities investing in our target investments;
•effects of hedging instruments on our target investments;
•changes in governmental regulations, tax law and rates and similar matters;
•our ability to maintain our qualification as a REIT for
•availability of desirable investment opportunities;
•availability of qualified personnel;
•estimates relating to our ability to make distributions to our stockholders in the future;
29
--------------------------------------------------------------------------------
Table of Contents •acts of God, such as hurricanes, earthquakes and other natural disasters, including climate change-related risks, acts of war and/or terrorism, pandemics or outbreaks of infectious disease, such as the COVID-19 pandemic, and other events that may cause unanticipated and uninsured performance declines and/or losses to us or the owners and operators of the real estate securing our investments; •economic impact of escalating global trade tensions, including the conflict between Russian andUkraine , and the adoption or expansion of economic sanctions or trade restrictions; •accelerating inflationary trends, spurred by multiple factors including high commodity prices, a tight labor market and low residential vacancy rates, may result in further interest rate increases and lead to increased market volatility; •deterioration in the performance of the properties securing our investments that may cause deterioration in the performance of our investments and, potentially, principal losses to us, including the risk of credit loss charges and any impact on our ability to satisfy the covenants and conditions in our debt agreements; and
•difficulty or delays in redeploying the proceeds from repayments of our existing investments.
This Quarterly Report on Form 10-Q may contain statistics and other data that, in some cases, have been obtained or compiled from information made available by loan servicers and other third-party service providers.
Second Quarter 2022 Activity
Operating Results:
•GAAP net loss attributable to common stockholders of
•Distributable Earnings of$11.7 million , or$0.22 per basic share, which excludes the$(13.6) million increase in CECL reserve net of the$0.5 million recovery of amounts previously written off,$(1.9) million of non-cash equity compensation expense, and the$(13.0) million loss on early extinguishment of debt.
•Book value per share of common stock of
•Declared aggregate common stock dividends of$13.4 million , or$0.25 per share of common stock, and preferred dividends of$3.6 million , or$0.43750 per share of Series A Preferred Stock.
Investment Portfolio Activity:
•Originated five loans with total commitments of
•Funded
•Realized loan repayments, principal paydowns and principal amortization of
•Maintained a portfolio of 104 loan investments with a weighted average stabilized loan to value ratio, or LTV, at origination of 63.1%, and a weighted average all-in yield at origination of L+/S+4.07%.
•Collected 100% of contractual interest payments during the three months endedJune 30, 2022 , inclusive of loan modifications and two loans on nonaccrual status. Deferred, and added to the principal,$0.5 million of interest income related to a loan that had been modified.
Corporate Financing Activity:
•Repaid the remaining
•Repaid the remaining$129.1 million of borrowings outstanding under the term financing facility withGoldman Sachs Bank USA . •Redeemed the GPMT 2018-FL1CRE CLO , which at its redemption had$103.6 million of investment-grade bonds outstanding. •Entered into a modification on theMorgan Stanley Bank repurchase financing facility to increase the maximum facility capacity amount up to$600.0 million as well as extend the maturity date of the facility toJune 28, 2023 .
•Extended maturities of the Wells Fargo, JPMorgan and Citibank repurchase
financing facilities to
•Accretively repurchased over 1.5 million shares of common stock at an average
price of
Available Liquidity
•At
Key Financial Measures and Indicators
As a commercial real estate finance company, we believe the key financial measures and indicators for our business are earnings per share presented on aU.S. generally accepted accounting principles, or GAAP, basis, dividends declared on common stock, Distributable Earnings and book value per share of common stock. For the three months endedJune 30, 2022 , 30
--------------------------------------------------------------------------------
Table of Contents we recorded GAAP loss per basic share of$(0.32) , declared a cash dividend of$0.25 per share of common stock and reported Distributable Earnings of$0.22 per basic share. Our book value as ofJune 30, 2022 , was$16.01 per share of common stock, inclusive of$(0.96) of total Current Expected Credit Loss, or CECL, reserve. As further described below, Distributable Earnings is a measure that is not prepared in accordance with GAAP. We use Distributable Earnings to evaluate our performance, excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations. In addition, Distributable Earnings is a performance metric we consider, along with other measures, when declaring our common stock dividends.
Earnings Per Share and Dividends Declared Per Common Share
The following table sets forth the calculation of basic and diluted (loss) earnings per share and dividends declared per share:
Three Months Ended Six Months Ended June 30, June 30, (in thousands, except share data) 2022 2021 2022 2021 Net (loss) income attributable to common stockholders$ (13,731) $
14,269
53,512,005 55,009,732 53,683,575 55,073,317 Weighted average number of diluted shares outstanding 53,512,005 58,526,985 53,683,575 72,564,914
Basic (loss) earnings per basic common share
0.26
0.24
$ 0.25 $ 0.25 $ 0.50 $ 0.50 Distributable Earnings In order to maintain our status as a REIT, we are required to distribute at least 90% of our taxable income as dividends. Distributable Earnings is intended to over time serve as a general, though imperfect, proxy for our taxable income. As such, Distributable Earnings is considered a key indicator of our ability to generate sufficient income to pay our common dividends, which is the primary focus of income-oriented investors who comprise a meaningful segment of our stockholder base. We believe providing Distributable Earnings on a supplemental basis to our net income and cash flow from operating activities, as determined in accordance with GAAP, is helpful to stockholders in assessing the overall run-rate operating performance of our business. We use Distributable Earnings to evaluate our performance, excluding the effects of certain transactions and GAAP adjustments we believe are not necessarily indicative of our current loan portfolio and operations. For reporting purposes, we define Distributable Earnings as net income attributable to our stockholders, computed in accordance with GAAP, excluding: (i) non-cash equity compensation expenses; (ii) depreciation and amortization; (iii) any unrealized gains (losses) or other similar non-cash items that are included in net income for the applicable reporting period (regardless of whether such items are included in other comprehensive income or in net income for such period); and (iv) certain non-cash items and one-time expenses. Distributable Earnings may also be adjusted from time to time for reporting purposes to exclude one-time events pursuant to changes in GAAP and certain other material non-cash income or expense items approved by a majority of our independent directors. The exclusion of depreciation and amortization from the calculation of Distributable Earnings only applies to debt investments related to real estate to the extent we foreclose upon the property or properties underlying such debt investments. While Distributable Earnings excludes the impact of the unrealized non-cash current provision for credit losses, we expect to only recognize such potential credit losses in Distributable Earnings if and when such amounts are deemed non-recoverable. This is generally at the time a loan is repaid, or in the case of foreclosure, when the underlying asset is sold, but non-recoverability may also be concluded if, in our determination, it is nearly certain that all amounts due will not be collected. The realized loss amount reflected in Distributable Earnings will equal the difference between the cash received, or expected to be received, and the carrying value of the asset, and is reflective of our economic experience as it relates to the ultimate realization of the loan. During the three and six months endedJune 30, 2022 , we recorded provision for credit losses of$(13.6) million and$(17.3) million , respectively, which has been excluded from Distributable Earnings consistent with other unrealized gains (losses) and other non-cash items pursuant to our existing policy for reporting Distributable Earnings referenced above. Pursuant to our existing policy for reporting Distributable Earnings referenced above, during the three months endedJune 30, 2022 , we recorded a$0.5 million recovery of amounts previously written off in a prior period on a discounted payoff. Additionally, during the six months endedJune 30, 2022 , we recorded a$(10.1) million write-off on a loan sale, which we included in Distributable Earnings because we did not collect all amounts due at the time the loan was sold. During the three and six months endedJune 30, 2022 , we recorded a$(13.0) million and$(18.8) million , respectively, loss on early extinguishment of debt, which has been excluded from Distributable Earnings consistent with certain one-time expenses pursuant to our existing policy for reporting Distributable Earnings as a helpful indicator in assessing the overall run-rate operating performance of our business. 31
--------------------------------------------------------------------------------
Table of Contents Distributable Earnings does not represent net income or cash flow from operating activities and should not be considered as an alternative to GAAP net income, or an indication of our GAAP cash flows from operations, a measure of our liquidity, or an indication of funds available for our cash needs. In addition, our methodology for calculating Distributable Earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and, accordingly, our reported Distributable Earnings may not be comparable to the Distributable Earnings reported by other companies.
The following table provides a reconciliation of GAAP net (loss) income attributable to common stockholders to Distributable Earnings (in thousands, except share and per share data):
Three Months Ended Six Months Ended June 30, June 30, (in thousands, except share data) 2022 2021 2022 2021 Reconciliation of GAAP net (loss) income to Distributable Earnings: GAAP net (loss) income attributable to common stockholders$ (17,356) $
14,244
(193) 17,315 (9,312) Write-off on loan sale - - (10,107) - Recovery of amounts previously written off 512 - 512 - Loss on extinguishment of debt 13,032 - 18,823 - Non-cash equity compensation 1,906 1,639 4,077 3,526 Distributable Earnings$ 11,721 $
15,690
$ 0.22 $ 0.29 $ 0.27 $ 0.66 Basic weighted average common shares - Distributable Earnings 53,512,005 55,009,732 53,683,575 55,073,317
Book Value Per Common Share
The following table provides the calculation of our book value per share of common stock:
(in thousands, except share data) June 30, 2022 December 31, 2021 Stockholders' equity $
1,043,709
(205,738) (114,913) Common stockholders' equity$ 837,971 $ 898,145 Shares: Common stock 52,258,404 53,524,803 Restricted stock 92,585 264,662 Total outstanding 52,350,989 53,789,465 Book value per share of common stock$ 16.01 $ 16.70 Book value per share as ofJune 30, 2022 , includes the impact of an estimated allowance for credit losses of$(50.1) million , or$(0.96) per common share. See Note 3 - Loans Held-for-Investment, Net of Allowance for Credit Losses to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a detailed discussion of allowance for credit losses. 32
--------------------------------------------------------------------------------
Table of Contents Portfolio Overview Our business model is mainly focused on directly originating, investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments. As a result of this strategy, our operating performance is subject to overall market demand for commercial real estate loan products and other debt and debt-like commercial real estate investments. We place emphasis on diversifying our investment portfolio across geographical regions and local markets, property types, borrowers and loan structures. We do not limit our loan originations by geographical area or property type, so that we may develop a well-diversified investment portfolio. Interest-earning assets include our 100% loan investment portfolio. AtJune 30, 2022 , our portfolio was comprised of 104 loans, of which 102 were senior first mortgage loans totaling$4.2 billion of commitments with an unpaid principal balance of$3.9 billion , and two were subordinated loans totaling$14.2 million in commitments and unpaid principal balance. During the three months endedJune 30, 2022 , we collected 100% of the contractual interest payments that were due under our loan agreements, after taking into consideration certain loans that have been modified mainly due to the impact of the COVID-19 pandemic and two loans on nonaccrual status. AtJune 30, 2022 , the weighted average risk rating of our loan portfolio was 2.5, weighted by total unpaid principal balance, as compared to 2.5 atMarch 31, 2022 , and 2.6 atDecember 31, 2021 . During the three months endedJune 30, 2022 , we originated five loans with a total loan commitment amount of$202.1 million , of which$168.7 million was funded at origination. Other loan fundings included$43.0 million of additional fundings made under existing loan commitments. Proceeds from loan repayments and principal amortization totaled$120.1 million . We generated interest income of$49.3 million and incurred interest expense of$27.3 million , which resulted in net interest income of$21.9 million . See Note 3 - Loans Held-for-Investment, Net of Allowance for Credit Losses to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for details.
The following table details our loan activity by unpaid principal balance for
the three months ended
Three Months Ended June 30, (in thousands) 2022 2021 Loan originations$ 168,741 $ 163,363 Other loan fundings (1)$ 42,979 $ 30,434 Deferred interest capitalized $ 525$ 4,041 Loan repayments (2)$ (120,107) $ (422,969) Total loan activity, net$ 92,138 $ (225,131) ___________________
(1) Additional fundings made under existing loan commitments and upsizing of loans.
(2) Includes repayment of deferred interest capitalized.
The following table details overall statistics for our investment portfolio as
of
(dollars in thousands)
Portfolio Summary Number of loans 104 Total loan commitments$ 4,248,184 Unpaid principal balance$ 3,889,479 Unfunded loan commitments$ 358,705 Carrying value$ 3,830,014 Weighted-average cash coupon L+/S+3.51% Weighted-average all-in yield L+/S+4.07% Stabilized LTV at origination 63.1 % 33
--------------------------------------------------------------------------------
Table of Contents
The following table provides detail of our portfolio as of
(dollars in millions)
Origination/ All-in Yield at Original Term Type (1) Acquisition Date Maximum Loan Commitment Principal Balance Carrying Value Cash Coupon (2) Origination (3) (Years) (4) State Property Type Initial LTV (5) Stabilized LTV (6) Senior 12/15$120.0 $120.0 $117.6 L+4.15% L+4.43% 4.0 LA Mixed-Use 65.5% 60.0% Senior 10/19 120.0 93.8 89.3 L+3.24% L+3.86% 3.0 CA Office 63.9% 61.1% Senior 07/18 114.1 114.1 99.5 L+3.34% L+4.27% 2.0 CA Retail 50.7% 55.9% Senior 12/19 111.1 102.4 101.1 L+2.75% L+3.23% 3.0 IL Multifamily 76.5% 73.0% Senior 08/19 100.3 92.7 91.1 L+2.80% L+3.26% 3.0 MN Office 73.1% 71.2% Senior 12/18 96.5 84.3 82.3 L+3.75% L+5.21% 3.0 NY Mixed-Use 26.2% 47.6% Senior 07/19 94.0 83.2 82.9 L+3.69% L+4.32% 3.0 IL Office 70.0% 64.4% Senior 10/19 87.9 86.5 86.2 L+2.55% L+3.05% 3.0 TN Office 70.2% 74.2% Senior 01/20 81.9 69.0 68.7 L+3.25% L+3.93% 3.0 CO Industrial 47.2% 47.5% Senior 06/19 81.7 81.4 80.6 L+2.69% L+3.05% 3.0 TX Mixed-Use 71.7% 72.2% Senior 10/19 76.8 76.8 75.8 L+3.36% L+3.73% 3.0 FL Mixed-Use 67.7% 62.9% Senior 12/16 71.8 68.6 68.2 S+4.65% S+4.87% 4.0 FL Office 73.3% 63.2% Senior 11/17 65.7 65.7 64.7 L+4.45% L+5.20% 3.0 TX Hotel 68.2% 61.6% Senior 12/19 65.2 57.9 57.5 L+2.80% L+3.28% 3.0 NY Office 68.8% 59.3% Senior 07/21 63.3 60.9 60.4 L+3.00% L+3.39% 3.0 LA Multifamily 68.8% 68.6% Senior 09/19 60.2 60.2 60.2 L+3.00% L+3.63% 2.0 TX Office 64.7% 59.0% Senior 12/18 60.1 58.0 57.8 L+2.90% L+3.44% 3.0 TX Office 68.5% 66.7% Senior 10/21 55.5 51.4 50.3 L+3.15% L+3.42% 3.0 CO Multifamily 78.2% 74.7% Senior 05/22 55.5 38.2 37.5 S+3.29% S+3.70% 3.0 TX Multifamily 59.3% 62.9% Senior 05/19 55.4 49.4 49.2 L+3.20% L+3.60% 3.0 NY Mixed-Use 59.7% 55.1% Senior 06/19 54.1 51.6 51.5 L+3.30% L+3.70% 3.0VA Office 49.3% 49.9% Senior 11/21 52.8 46.6 45.9 L+3.40% L+3.82% 3.0 PA Mixed-Use 62.0% 63.5% Senior 06/21 52.7 46.7 45.8 L+4.32% L+4.75% 3.0 GA Office 68.0% 69.4% Senior 09/21 51.7 48.7 47.9 L+5.00% L+5.12% 3.0 MN Hotel 68.4% 57.8% Senior 02/20 50.2 45.8 45.0 L+3.30% L+3.75% 3.0 TN Hotel 69.1% 54.2% Senior 09/18 50.1 35.9 35.7 L+3.25% L+4.13% 3.0 IL Office 47.9% 56.1% Senior 03/22 49.9 46.9 46.1 S+3.25% S+3.64% 3.0 MA Industrial 67.3% 60.8% Senior 08/19 48.2 44.6 43.5 L+3.70% L+3.39% 3.0 GA Office 69.5% 68.3% Senior 12/15 47.5 47.5 47.4 L+4.50% L+4.87% 4.0 PA Office 74.5% 67.5% Senior 07/21 46.4 45.4 45.0 L+3.69% L+4.19% 3.0 CT Office 68.3% 63.5% Senior 04/22 46.2 43.0 42.2 S+3.41% S+3.78% 3.0 TX Multifamily 74.4% 64.0% Senior 06/18 46.0 46.0 46.0 L+3.60% L+4.06% 3.0 WY Hotel 67.4% 62.3% Senior 08/21 45.8 45.4 45.0 L+3.16% L+3.53% 3.0 TX Multifamily 77.8% 75.2% Senior 08/18 45.7 45.7 45.7 L+3.33% L+3.32% 3.0 TX Multifamily 68.9% 63.6% Senior 09/21 44.3 38.7 38.2 L+3.30% L+3.72% 3.0 CA Office 62.4% 66.1% Senior 08/17 43.5 43.5 40.7 L+4.24% L+4.40% 3.0 KY Multifamily 79.8% 73.1% Senior 02/22 42.4 42.4 41.7 S+3.05% S+3.40% 3.0 NJ Industrial 75.0% 59.5% Senior 12/17 40.9 38.5 38.4 L+4.38% L+5.26% 3.0 MA Mixed-Use 72.9% 62.0% Senior 07/16 40.5 40.5 40.5 L+2.93% L+4.99% 4.0VA Office 62.8% 61.5% Senior 04/22 40.2 36.3 35.9 S+4.65% S+4.87% 3.0 NY Other 66.7% 61.8% Senior 05/21 38.9 26.6 25.3 L+3.28% L+3.83% 3.0 AL Multifamily 72.2% 64.8% Senior 05/18 38.8 34.8 34.7 L+3.18% L+3.95% 3.0 MA Office 47.0% 41.1% Senior 11/18 37.1 36.9 36.8 L+3.60% L+5.50% 3.0 CA Mixed-Use 69.9% 67.9% Senior 11/19 36.5 33.7 33.4 L+3.28% L+3.14% 3.0 NC Multifamily 80.0% 72.8% Senior 07/19 36.2 36.2 36.1 L+3.70% L+4.43% 3.0 NJ Hotel 47.8% 54.6% Senior 03/20 34.9 19.0 18.3 L+3.42% L+4.66% 3.0 GA Office 63.2% 64.6% Senior 05/17 34.8 31.4 31.1 L+5.35% L+5.97% 3.0 TX Office 68.7% 65.1% Senior 10/19 34.4 25.3 25.3 L+2.75% L+3.28% 3.0 CA Office 70.6% 67.8% Senior 12/18 34.2 32.9 32.2 L+2.92% L+3.27% 4.0 IL Multifamily 70.8% 62.1% Senior 05/17 33.8 29.8 29.7 S+4.51% S+5.36% 3.0 AZ Office 69.5% 59.0% Senior 10/19 33.7 26.1 26.1 L+3.15% L+3.75% 3.0 CA Office 70.6% 64.2% Senior 08/19 33.5 29.3 29.2 L+2.90% L+3.38% 3.0 TX Multifamily 79.3% 72.5% Senior 11/21 33.4 28.6 27.8 L+3.18% L+3.52% 3.0 AL Multifamily 77.9% 68.1% Senior 03/16 33.2 33.2 33.1 5.11% 5.26% 10.0 NJ Office 74.9% 74.9% Senior 10/21 32.2 32.2 32.0 L+3.15% L+3.43% 3.0 AR Multifamily 63.1% 63.1% Senior 03/19 32.1 28.6 28.5 L+2.97% L+3.42% 3.0 NY Office 53.8% 48.5% Senior 08/19 32.0 29.9 29.9 L+3.32% L+5.27% 3.0 MA Office 76.5% 54.1% Senior 06/18 32.0 27.3 27.2 L+4.07% L+4.75% 3.0 OH Hotel 70.6% 57.4% 34
--------------------------------------------------------------------------------
Table of Contents Senior 04/22 31.7 26.5 26.1 S+3.35% S+3.73% 3.0 GA Multifamily 75.1% 67.1% Senior 11/19 31.1 31.1 31.1 L+2.75% L+3.27% 2.0 IL Multifamily 72.7% 72.7% Senior 05/18 29.4 29.4 28.6 S+5.00% S+4.63% 3.0 NY Mixed-Use 57.0% 51.1% Senior 05/17 29.0 27.8 27.7 L+4.50% L+5.19% 4.0 FL Office 69.3% 68.5% Senior 04/22 28.5 25.7 25.3 S+3.22% S+3.55% 3.0 TX Multifamily 73.3% 63.9% Senior 03/20 28.0 23.0 22.9 L+2.80% L+3.27% 3.0 CA Office 63.6% 66.7% Senior 11/19 27.7 20.3 20.3 L+3.18% L+3.64% 3.0 CA Office 61.7% 62.8% Senior 01/19 27.6 26.9 26.8 L+2.97% L+3.38% 3.0 TX Multifamily 64.9% 64.9% Senior 12/18 27.5 27.5 27.2 L+3.90% L+4.42% 3.0 MN Hotel 64.7% 57.7% Senior 07/17 27.3 27.3 27.2 L+4.10% L+4.58% 3.0 NY Multifamily 76.5% 76.5% Senior 03/22 27.2 22.9 22.3 S+4.14% S+4.89% 3.0 NC Office 47.4% 53.5% Senior 06/17 27.0 24.0 24.0 L+3.83% L+5.24% 3.0 CA Hotel 54.7% 48.6% Senior 01/19 27.0 24.6 24.5 L+3.15% L+3.44% 3.0 MA Office 71.2% 70.1% Senior 08/19 26.8 26.3 26.1 L+3.15% L+3.67% 3.0 SC Multifamily 67.0% 58.7% Senior 01/18 26.0 26.0 25.9 L+5.13% L+5.58% 3.0 AZ Hotel 65.8% 61.3% Senior 12/18 25.9 24.6 24.1 L+4.00% L+5.56% 3.0 PA Multifamily 70.1% 67.0% Senior 10/21 25.7 25.7 25.3 L+3.15% L+3.43% 4.0 GA Industrial 67.5% 64.5% Senior 09/18 25.1 22.0 21.9 L+3.87% L+4.42% 3.0 NY Mixed-Use 60.2% 59.3% Senior 08/19 25.0 23.9 23.8 L+2.66% L+3.07% 2.0 OK Multifamily 79.9% 74.2% Senior 12/21 24.7 16.7 16.5 L+3.30% L+3.59% 3.0 CA Office 72.9% 68.3% Senior 09/21 24.4 22.5 22.3 L+3.18% L+3.61% 3.0 CA Multifamily 71.9% 57.8% Senior 09/17 24.4 21.4 21.3 L+4.90% L+5.52% 3.0 MA Hotel 67.3% 63.9% Senior 12/21 24.4 20.4 20.3 L+3.86% L+4.16% 3.0 Various Other 55.1% 64.3% Senior 07/19 24.0 20.9 20.8 L+3.00% L+3.60% 3.0 OH Office 63.1% 66.1% Senior 10/15 23.8 23.8 23.2 L+4.07% L+5.76% 3.0 MO Hotel 73.2% 57.8% Senior 05/21 23.3 16.9 16.7 L+3.50% L+4.09% 3.0 LA Multifamily 68.0% 69.6% Senior 02/22 22.9 19.4 19.2 S+3.90% S+4.29% 3.0 CO Office 64.4% 60.2% Senior 06/18 22.8 18.4 18.3 L+4.21% L+4.73% 3.0 FL Retail 74.0% 69.4% Senior 04/18 22.2 22.2 22.1 L+4.05% L+4.46% 3.0 KS Multifamily 72.1% 67.4% Senior 06/19 21.5 21.5 21.4 L+4.50% L+5.05% 3.0 NY Other 39.6% 39.6% Senior 07/21 21.4 21.4 21.1 L+3.25% L+3.63% 3.0 GA Multifamily 77.0% 68.7% Senior 10/18 21.4 21.2 20.9 L+4.21% L+5.16% 3.0 CT Hotel 75.4% 66.9% Senior 03/19 21.1 20.8 20.7 L+2.93% L+3.40% 3.0 KY Multifamily 69.8% 69.9% Senior 06/19 21.0 19.9 19.9 L+2.90% L+4.24% 3.0 GA Mixed-Use 60.6% 67.4% Senior 05/21 20.6 18.5 18.3 L+3.99% L+4.41% 3.0 FL Multifamily 69.8% 62.8% Senior 01/18 19.3 17.6 17.6 L+4.77% L+5.50% 3.0 PA Mixed-Use 66.8% 67.3% Senior 10/18 19.2 17.0 17.0 L+3.24% L+3.69% 3.0 TX Office 73.0% 69.9% Senior 11/18 19.0 16.7 16.6 L+3.20% L+3.83% 3.0 CA Office 73.1% 64.5% Senior 08/17 17.5 14.5 14.4 L+4.77% L+5.49% 3.0 PA Office 66.7% 67.3% Senior 06/21 16.7 13.5 13.3 L+3.35% L+3.82% 4.0 IN Multifamily 67.0% 66.4% Senior 07/18 15.4 11.1 11.0 L+3.75% L+4.35% 3.0 CA Office 77.1% 63.5% Senior 06/19 15.2 11.6 11.6 L+3.96% L+4.69% 3.0 NY Office 40.7% 60.0% Senior 08/21 14.4 14.0 13.9 L+3.65% L+3.88% 3.0 CO Office 72.0% 63.7% Mezzanine 01/17 13.9 13.9 13.1 8.00% 8.11% 10.0 HI Hotel 41.4% 36.2% Senior 09/19 12.0 11.8 11.7 L+2.99% L+3.50% 3.0 WI Multifamily 51.4% 75.0% Mezzanine 11/15 0.4 0.4 - 13.00% 12.50% 10.0 NY Hotel 68.3% 58.0% Total/Weighted Average$4,248.2 $3,889.5 $3,830.0 L+/S+3.51% L+/S+4.07% 3.1 66.1% 63.1% ____________________ (1)"Senior" means a loan primarily secured by a first priority lien on commercial real property and related personal property and also includes, when applicable, any companion subordinate loans. (2)Cash coupon does not include origination or exit fees. Weighted average cash coupon excludes fixed rate loans. (3)Yield includes net origination fees and exit fees, but does not include future fundings, and is expressed as a monthly equivalent. Weighted average yield excludes fixed rate loans. (4)Original term (years) is the initial maturity date at origination and does not include any extension options and has not been updated to reflect any subsequent extensions or modifications, if applicable. (5)Initial loan-to-value ratio, or initial LTV, is calculated as the initial loan amount (plus any financing that is pari passu with or senior to such loan) divided by the as is appraised value (as determined in conformance with the Uniform Standards of Professional Appraisal Practice, or USPAP) as of the date of the loan was originated set forth in the original appraisal. (6)Stabilized loan-to-value ratio, or stabilized LTV, is calculated as the fully funded loan amount (plus any financing that is pari passu with or senior to such loan), including all contractually provided for future fundings, divided by the as stabilized value (as determined in conformance with USPAP) set forth in the original appraisal. As stabilized value may be based on certain assumptions, such as future construction completion, projected re-tenanting, payment of tenant improvement or leasing commissions allowances or free or abated rent periods, or increased tenant occupancies. 35
--------------------------------------------------------------------------------
Table of Contents Most of our loans are structured with an initial maturity term, typically three years, and one or more (typically two) one-year extension options, which can be exercised by the borrower subject to meeting various extension conditions in accordance with the terms of the loan agreement. As part of our overall asset management strategy, we have in the past entered into, and may in the future enter into, loan modifications with some of our borrowers. These amendments may include, among other things, modifying or waiving certain performance or extension conditions as part of the overall agreement.
The map and charts below illustrate the geographic distribution and types of
properties securing our portfolio as of
[[Image Removed: gpmt-20220630_g1.jpg]]
[[Image Removed: gpmt-20220630_g2.jpg]][[Image Removed: gpmt-20220630_g3.jpg]]
Portfolio Management and Credit Quality
We actively manage each loan investment from closing and initial funding through final repayment and assess the risk of credit deterioration by quarterly evaluating the performance of the underlying collateral properties. We also evaluate the macroeconomic environment, prevailing real estate fundamentals and local property market dynamics. Typically, our loan documents allow us, among other things, to receive regular property, borrower and guarantor financial statements; approve 36
--------------------------------------------------------------------------------
Table of Contents annual budgets and major tenant leases; and enforce loan covenants and remedies. In addition, we work withTrimont Real Estate Advisors LLC , one of the leading commercial real estate loan servicers, which provides us with a fully-dedicated and experienced team to increase efficiency and leverage our internal resources in servicing and asset managing our loan investments. Our internal team retains authority on all asset management decisions. We maintain strong relationships and an active asset management dialogue with our borrowers. We have leveraged those strong relationships to minimize the negative impacts of the COVID-19 pandemic on our portfolio, particularly in respect of the properties securing loans in our portfolio experiencing COVID-19-related business interruptions and pressure on operating cash flows. While we generally believe that the principal amount of our loans is sufficiently protected by the underlying collateral value, there is a risk that we will not realize the entire principal amount of certain of our loan investments. In addition to ongoing asset management, we review our entire portfolio quarterly, assess the performance of each loan and assign it a risk rating on a scale between "1" and "5," from least risk to greatest risk, respectively. See Note 3 - Loans Held-for-Investment, Net of Allowance for Credit Losses to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion regarding the risk rating methodology we use for our portfolio. The following table allocates the unpaid principal balance and the carrying value balances based on our internal risk ratings: (dollars in thousands) June 30, December 31, 2022 2021 Unpaid Principal Unpaid Principal Risk Rating Number of Loans Balance Carrying Value Number of Loans Balance Carrying Value 1 8$ 292,285 $ 291,458 9$ 245,939 $ 245,042 2 59 2,083,389 2,060,713 58 2,002,008 1,983,615 3 27 869,253 861,050 25 747,631 739,343 4 8 436,641 427,954 11 633,153 627,938 5 2 207,911 188,839 2 168,094 145,370 Total 104$ 3,889,479 $ 3,830,014 105$ 3,796,825 $ 3,741,308
Other Portfolio Developments
During the three months endedJune 30, 2022 , a first mortgage loan with a principal balance of$93.8 million collateralized by an office property located inSan Diego, CA , was downgraded to a risk rating of "5" as a result of the collateral property's operating performance being adversely affected by the ongoing office leasing market challenges related to the COVID-19 pandemic. We have determined that the recovery of the loan principal is collateral-dependent. Accordingly, this loan was assessed individually, and we have elected to apply a practical expedient in accordance with "Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments (Topic 326)," or ASU 2016-13. AtJune 30, 2022 , we recorded an allowance for credit loss of$4.5 million on the unpaid principal balance of this loan based on our estimate of fair value using the estimated proceeds available from the borrower's sale of the collateral property less the estimated cost to sell the property. Additionally, as ofJune 30, 2022 , we placed this loan on nonaccrual status. During 2021, we entered into a loan modification related to a retail asset located inPasadena, CA , which was classified as troubled debt restructuring under GAAP. This modification included, among other changes, a partial deferral of the loan's contractual interest payments due to the collateral property's cash flows and operating performance being adversely affected by the ongoing effects of the COVID-19 pandemic. This loan had also been previously modified. AtJune 30, 2022 , this first mortgage loan had an outstanding principal balance of$114.1 million , and during the three and six months endedJune 30, 2022 , was maintained at a risk rating of "5". We have determined that the recovery of the loan's principal is collateral-dependent. Accordingly, this loan was assessed individually, and we elected to apply a practical expedient in accordance with ASU 2016-13. AtJune 30, 2022 , we recorded an allowance for credit loss of$14.1 million on this loan based on our estimate of fair value of the loan's underlying collateral using the discounted cash flow method of valuation less the estimated cost to foreclose and sell the property. The estimation of the fair value of the collateral property also involved using various Level 3 inputs, which were in part developed based on discussions with various market participants and management's best estimates as of the valuation date and required significant judgment. Additionally, during 2021, we placed this loan on nonaccrual status and reversed$0.3 million of interest income. This loan's maturity date has passed without the loan being paid off. We are evaluating, and at any given time may be pursuing, a variety of potential options with respect to the resolution of this loan, which, among others, may include a foreclosure, negotiated deed-in-lieu of foreclosure, a sale of the underlying collateral property or a sale of the loan. 37
--------------------------------------------------------------------------------
Table of Contents Portfolio Financing As ofJune 30, 2022 , our portfolio financing consisted of repurchase facilities collateralized by loans held-for-investment, securitized debt obligations collateralized by pools of loans held-for-investment issued in CRE CLOs and an asset-specific financing facility collateralized by loans held-for-investment. Our non-mark-to-market financing sources accounted for approximately 53.6% of portfolio loan-level financing as ofJune 30, 2022 . The following table details our portfolio loan-level financing as ofJune 30, 2022 , andDecember 31, 2021 : June 30, December 31, (in thousands) 2022 2021 CRE CLOs$ 1,425,556 $ 1,677,619 Term financing facility - 127,145 Asset-specific financing facility 43,622 43,622
Total non-mark-to-market financing 1,469,178 1,848,386 Secured repurchase agreements 1,271,659
677,285 Total portfolio financing$ 2,740,837 $ 2,525,671 The following table summarizes assets at carrying values that served as collateral for the future payment obligations of the repurchase facilities, the asset-specific financing facility, the term financing facility and the CRE CLOs as ofJune 30, 2022 , andDecember 31, 2021 : June 30, December 31, (in thousands) 2022 2021 Loans held-for-investment$ 3,644,240 $ 3,681,089 Restricted cash 69,492 12,362 Total$ 3,713,732 $ 3,693,451
Secured Repurchase Agreements
As ofJune 30, 2022 , we had repurchase facilities in place with five counterparties (lenders) with aggregate outstanding borrowings of$1.3 billion , which financed a portion of our loans held-for-investment. As ofJune 30, 2022 , the weighted average borrowing rate on our repurchase facilities was 3.7%, the weighted average advance rate was 70.4%, and the term to maturity ranged from 363 days to approximately 2.9 years, with a weighted average remaining maturity of 1.6 years. 38
--------------------------------------------------------------------------------
Table of Contents The table below details our secured repurchase facilities as ofJune 30, 2022 : June 30, 2022 Amount Unused (in thousands) Maturity Date (1) Committed Outstanding Capacity Total Capacity Repurchase facilities: Morgan Stanley Bank (2) June 28, 2023 No$ 581,440 $ 18,560 $ 600,000 Goldman Sachs Bank USA (3) July 13, 2023 No$ 127,725 $ 122,275 $ 250,000 JPMorgan Chase Bank (4) June 28, 2024 No$ 177,228 $ 172,772 $ 350,000 Citibank (5) May 25, 2025 No$ 285,266 $ 214,734 $ 500,000 Wells Fargo Bank (6) June 28, 2023 No$ 100,000 $ -$ 100,000 (1)The facilities are set to mature on the stated maturity date, unless extended pursuant to their terms. (2)During the three months endedJune 30, 2022 , the Company extended the maturity date toJune 28, 2023 , and increased the total capacity to$600 million . (3)As ofJune 30, 2022 , the Company retained options to increase the maximum facility capacity amount up to$350 million , subject to customary terms and conditions. (4)During the three months endedJune 30, 2022 , the Company extended the maturity date toJune 28, 2024 , and decreased the total capacity to$350 million . (5)During the three months endedJune 30, 2022 , the Company extended the maturity date toMay 25, 2025 . (6)During the three months endedJune 30, 2022 , the Company extended the maturity date toJune 28, 2023 . Under our repurchase facilities, our counterparties may make margin calls because of a perceived decline in the value of our assets collateralizing the given secured financing arrangement due to a credit event or, under a limited number of our repurchase facilities, due to market events. To cover a margin call, we may transfer cash to such counterparty. At maturity, any cash on deposit as collateral is generally applied against the repurchase facility balance, thereby reducing the amount borrowed. Should the value of our assets suddenly decrease, significant margin calls on our repurchase facilities could result, causing an adverse change in our liquidity position.
Commercial Real Estate Collateralized Loan Obligations
We have financed certain pools of our loans through CRE CLOs. AtJune 30, 2022 , we had three CRE CLOs outstanding: GPMT 2021-FL4, GPMT 2021-FL3 and GPMT 2019-FL2, totaling$1.4 billion of outstanding borrowings, financing 55 of our existing first mortgage loan investments with an aggregate principal balance of$1.9 billion . OnApril 22, 2022 , the Company redeemed the GPMT 2018-FL1CRE CLO , which at its redemption had$103.6 million of outstanding borrowings. The CRE CLOs provide us with an attractive cost of funds and, as ofJune 30, 2022 , financed 46.0% of our total loan portfolio principal balance on a term-matched, non-recourse and non-mark-to-market basis. 39
--------------------------------------------------------------------------------
Table of Contents
The following table details our
June 30, (dollars in thousands) 2022 Principal Securitized Debt Obligations Balance Carrying Value Wtd. Avg. Yield/Cost (1) GPMT 2021-FL4CRE CLO Collateral assets (2)$ 621,440 $ 613,325 L+ 3.7% Financing provided 502,564 498,677 L+ 1.7% GPMT 2021-FL3CRE CLO Collateral assets (3) 763,654 757,609 L+3.9% Financing provided 625,772 625,698 L+1.7% GPMT 2019-FL2CRE CLO Collateral assets 472,508 470,557 L+4.0% Financing provided 301,310 301,181 L+2.0% Total Collateral assets$ 1,857,602 $ 1,841,491 L+3.9% Financing provided$ 1,429,646 $ 1,425,556 L+1.7% ____________________ (1)Calculations of all in yield on collateral assets at origination are based on a number of assumptions (some or all of which may not occur) and are expressed as monthly equivalent yields that include net origination fees and exit fees and exclude future fundings and any potential or completed loan amendments or modifications. Calculations of cost of funds is the weighted average coupon of the CRE CLO, exclusive of anyCRE CLO issuance costs. (2)Includes$29.6 million of restricted cash as ofJune 30, 2022 . No restricted cash is included as ofDecember 31, 2021 . Yield on collateral assets is exclusive of restricted cash. (3)No restricted cash is included as ofJune 30, 2022 . Includes$10.4 million of restricted cash as ofDecember 31, 2021 . Yield on collateral assets is exclusive of restricted cash. Asset-Specific Financing InApril 2019 , we entered into a$150 million asset-specific financing facility withCIBC Bank USA to provide us with loan-based financing on a non-mark-to-market basis with a term matched to the underlying loan collateral and partial recourse to us.
The following table details the outstanding borrowings under our asset-specific
financing facility as of
June 30, (dollars in thousands) 2022 Principal Carrying Asset-Specific Financing Facility Balance Value Wtd. Avg. Yield/Cost (1) CIBC Asset-Specific Financing Facility Collateral assets$ 57,954 $ 57,794 L+3.4% Borrowings outstanding 43,622 43,622 L+1.7% ____________________ (1)Calculations of all in yield on collateral assets at origination are based on a number of assumptions (some or all of which may not occur) and are expressed as monthly equivalent yields that include net origination fees and exit fees and exclude future fundings and any potential or completed loan amendments or modifications. Calculations of all in weighted average yield at origination exclude fixed rate loans. Calculations of cost of funds is the initial weighted average coupon of the asset-specific financing facility, exclusive of any asset-specific financing facility issuance costs. 40
--------------------------------------------------------------------------------
Table of Contents Corporate Financing Convertible Senior Notes As ofJune 30, 2022 , the total outstanding amount due on convertible senior notes was$275.4 million . The notes are unsecured and pay interest semiannually at a rate of 5.625% per annum on the notes maturing inDecember 2022 , and a rate of 6.375% per annum on the notes maturing inOctober 2023 . As ofJune 30, 2022 , these notes had a conversion rate of 51.9943 and 50.0894 shares of common stock per$1,000 principal amount of the notes, respectively.
As of
June 30, (dollars in thousands) 2022 All-in Cost Convertible Senior Notes Principal Balance Carrying Value Interest Rate (1) Maturity Date Convertible Senior Notes Maturing 2022 143,750 143,337 5.6 % 6.4 % December 1, 2022 Convertible Senior Notes Maturing 2023 131,600 130,485 6.4 % 7.2 % October 1, 2023 ____________________
(1)In addition to cash coupon, average yield includes the amortization of deferred financing costs.
The following table provides the quarterly average balances, the quarter-end balances and the maximum balances at any month-end within that quarterly period, of borrowings under our repurchase facilities, asset-specific financing facility, term financing facility, CRE CLOs, senior secured term loan facilities and convertible senior notes for the three months endedJune 30, 2022 , and the four immediately preceding quarters: Quarterly End of Period Maximum Balance (in thousands) Average Balance of Any Month-End For the Three Months Ended June 30, 2022$ 3,017,504 $ 3,014,659 $ 3,051,406 For the Three Months Ended March 31, 2022$ 2,917,731 $ 2,918,429 $ 2,951,641 For the Three Months Ended December 31, 2021$ 2,985,109 $ 2,938,493 $ 3,031,364 For the Three Months Ended September 30, 2021$ 2,974,497 $ 2,927,103 $ 3,014,681 For the Three Months Ended June 30, 2021$ 2,989,774 $ 2,868,936 $ 3,129,181 Financial Covenants Our financial covenants and guarantees for outstanding borrowings related to our repurchase and asset-specific financing facilities generally require the Company to maintain compliance with the following most restrictive covenants across the agreements: Financial Covenant Description Value as of June 30, 2022 Cash Liquidity Unrestricted cash liquidity of no less than
Unrestricted cash of
the greater of$30.0 million and 5.0% of recourse indebtedness, which was$32.2 million. TangibleNet Worth Tangible net worth greater than the sum of
Tangible net worth of
(i) 75.0% of tangible net worth as ofJune 28, 2017 , and (ii) 75.0% of net cash proceeds of equity issuances afterJune 28, 2017 , which calculates to$931.7 million . Leverage Ratios Target asset leverage ratio cannot exceed
Target asset leverage ratio of 68.9%;
77.5% and total leverage ratio cannot
Total leverage ratio of 73.6%
exceed 80.0%. Interest Coverage Interest coverage ratio of no less than
Interest coverage of 1.8:1.0
1.5:1.0
We were in compliance with all financial covenants as of
Leverage Ratios
As of
The following table represents the Company's recourse leverage ratio and total
leverage ratio as of
41
--------------------------------------------------------------------------------
Table of Contents June 30, 2022 December 31, 2021 Recourse leverage ratio (1) 1.4 0.9 Total leverage ratio (2) 2.7 2.5
(1) The debt-to-equity ratio with respect to our loans held-for-investment, defined as recourse debt, net of cash, divided by total equity.
(2) The total debt-to-equity ratio with respect to our loans held-for-investment, defined as total debt, net of cash, divided by total equity.
Floating Rate Portfolio
Our business strategy seeks to minimize our exposure to changes in interest rates by matching benchmark indices on our assets with those on our asset level borrowings. Accordingly, our business model is such that, in general, rising interest rates will increase our net interest income, while declining interest rates will decrease our net interest income, subject to the impact of interest rate floors on our floating rate assets and certain liabilities. As ofJune 30, 2022 , 98.2% of our loan investments by carrying value earned a floating rate of interest and were financed with liabilities that pay interest on a floating rate basis, and 0.8% of our loan investments by carrying value earned a floating rate of interest and were unencumbered, which resulted in an amount of net equity that is positively correlated to rising interest rates, subject to the impact of interest rate floors on certain of our floating rate loan investments. As ofJune 30, 2022 , 1.2% of our loan investments by carrying value earned a fixed rate of interest and were financed with liabilities that pay interest on a floating rate basis, which resulted in a negative correlation to rising interest rates on that amount of our financing. The following table details our loan portfolio's net floating rate exposure as ofJune 30, 2022 : (in thousands) Net Exposure Floating rate assets (1)$ 3,783,751 Floating rate liabilities (1)(2) 2,740,837 Net floating rate exposure$ 1,042,914
(1) Floating rate assets and liabilities are indexed to the London Interbank Offered Rate (LIBOR) or the Secured Overnight Financing Rate (SOFR).
(2) Floating rate liabilities include our outstanding repurchase facilities, asset-specific financing facility and CRE CLOs.
Interest-Earning Assets and Interest-Bearing Liabilities
The following tables present the components of interest income and average
annualized net asset yield earned by asset type, the components of interest
expense and average annualized cost of funds on borrowings incurred by
collateral type and net interest income and average annualized net interest rate
spread for the three and six months ended
Three Months EndedJune 30, 2022 Six
Months Ended
Interest Net Yield/Cost of Interest Net Yield/Cost of (dollars in thousands) Average Balance Income/Expense (1) Funds Average Balance Income/Expense (1) Funds Interest-earning assets (2) Loans held-for-investment Senior loans (3)$ 3,868,746 $ 48,700 5.0 %$ 3,828,245 $ 95,639 5.0 % Subordinated loans 14,394 356 9.9 % 14,601 715 9.8 % Other - 223 - - 246 Total interest income/net asset yield$ 3,883,140 $ 49,279 5.1 %$ 3,842,846 $ 96,600 5.0 % Interest-bearing liabilities Borrowings collateralized by: Loans held-for-investment Senior loans (3)$ 2,644,499 $ 21,805 3.3 %$ 2,580,059 $ 38,133 3.0 % Subordinated loans 8,350 80 3.8 % 8,369 147 3.5 % Other: Convertible senior notes 273,669 4,572 6.7 % 273,448 9,118 6.7 % Senior secured term loan facilities 34,460 886 10.3 % 72,006 3,754 10.4 % Total interest expense/cost of funds$ 2,960,978 27,343 3.7 %$ 2,933,882 51,152 3.5 % Net interest income/spread $ 21,936 1.4 % $ 45,448 1.5 % 42
--------------------------------------------------------------------------------
Table of Contents Three Months Ended June 30, 2021 Six Months Ended June 30, 2021 Interest Net Yield/Cost of Interest Net Yield/Cost of (dollars in thousands) Average Balance Income/Expense (1) Funds Average Balance Income/Expense (1) Funds Interest-earning assets (2) Loans held-for-investment Senior loans (3)$ 3,689,170 $ 48,970 5.3 %$ 3,773,222 $ 102,627 5.4 % Subordinated loans 15,977 380 9.5 % 16,173 762 9.4 % Other - 103 - - 203
Total interest income/net asset yield
49,453 5.3 %$ 3,789,395 $ 103,592 5.5 % Interest-bearing liabilities Borrowings collateralized by: Loans held-for-investment Senior loans (3)$ 2,479,380 $ 16,410 2.6 %$ 2,570,979 $ 32,910 2.6 % Subordinated loans 8,489 67 3.2 % 8,510 134 3.1 % Other: Senior secured term loan facilities 207,621 5,653 10.9 % 207,253 10,933 10.6 % Convertible senior notes 271,930 4,544 6.7 % 271,723 9,062 6.7 % Total interest expense/cost of funds$ 2,967,420 26,674 3.6 %$ 3,058,465 53,039 3.5 % Net interest income/spread $ 22,779 1.7 % $ 50,553 2.0 % ____________________ (1)Includes amortization of deferred debt issuance costs. (2)Average balance represents average amortized cost on loans held-for-investment. (3)Loans primarily secured by a first priority lien on commercial real property and related personal property and also includes, when applicable, any companion subordinate loans. 43
--------------------------------------------------------------------------------
Table of Contents
Factors Affecting Our Operating Results
The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest income, the availability and cost of financing for us, the market value of our assets, the credit performance of our assets and the supply of, and demand for, commercial real estate loans, other commercial real estate debt instruments and other financial assets available for investment in the market and available as a source of refinancing of our assets. Our net interest income, which reflects the amortization of origination fees and direct costs, is recognized based on the contractual rate and the outstanding principal balance of the loans we originate. The objective of the interest method is to arrive at periodic interest income that yields a level rate of return over the loan term. Interest rates vary according to the type of loan or security, conditions in the financial markets, credit worthiness of our borrowers, competition and other factors, none of which can be predicted with any certainty. Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by our borrowers. We continue to monitor the effects on each of these factors in light of the COVID-19 pandemic and rising interest rates, and how they will affect the results of our operations.
Loan Originations
Our business model is mainly focused on directly originating, investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments. As a result of this strategy, our operating performance is subject to overall market demand for commercial real estate loan products and other debt and debt-like commercial real estate investments. We manage originations and acquisitions of our target investments by diversifying our investment portfolio across geographical regions, local markets, property types, borrower types and loan structures. We do not limit our investments to any number of geographical areas or property types for our originations so that we develop a well-diversified investment portfolio. Additionally, our team has extensive experience originating and acquiring commercial real estate loans and other debt and debt-like commercial real estate investments, through a network of long-standing relationships with borrowers, sponsors and industry brokers. The COVID-19 pandemic and rising market interest rates have resulted in significant disruptions in financial markets, uncertainty about the overall macroeconomic outlook and a dislocation in the commercial real estate sector, including reduced borrower demand, wider credit spreads, higher lending rates, increased capitalization rates on properties and significantly lower transaction volume. The dislocation in capital markets and decline in real estate sale transaction and refinancing activities caused by the pandemic and higher interest rates have negatively impacted, and will likely continue to negatively impact, the volume of loan repayments and prepayments on select property types, which are a significant source of our overall liquidity and could make it more difficult for us to originate new loan investments.
Financing Availability
We are subject to availability and cost of financing to successfully execute on our business strategy and generate attractive risk-adjusted returns to our stockholders. Much of our financing is in the form of repurchase agreements or other types of credit facilities provided to us by our lender counterparties. We mitigate this counterparty risk by seeking to diversify our lending partners, focusing on establishing borrowing relationships with strong counterparties and continuously monitoring them through a thoughtful approach to counterparty risk oversight. Additionally, as part of our broader risk management strategy, and to the extent available in the market, we finance our business through other means which may include, but not be limited to, securitizations, note sales and issuance of unsecured debt and equity instruments. We continue to actively explore additional types of funding facilities in order to further diversify our financing sources. The COVID-19 pandemic and rising interest rates have resulted in significant disruptions in financial markets and uncertainty about the overall macroeconomic outlook. Declines in economic conditions could negatively impact real estate and real estate capital markets, which could make it more difficult for us to obtain or maintain financing. We finance pools of our commercial real estate loans through collateralized loan obligations, or CRE CLOs, retaining subordinate securities in our investment portfolio. Our CRE CLOs are accounted for as financings with the non-retained securitized debt obligations recognized on our condensed consolidated balance sheets. Credit Risk We are subject to varying degrees of credit risk in connection with our target investments. The performance and value of our investments depend upon sponsors' ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. In addition, we are exposed to the risks generally associated with the commercial real estate market, including variances in occupancy rates, capitalization rates, absorption rates and other macroeconomic factors beyond our control. We try to mitigate this risk by seeking to originate or acquire assets of higher quality at appropriate rates of return given anticipated and unanticipated losses, by employing a comprehensive review and selection process and by proactively monitoring originated or acquired investments. Nevertheless, unanticipated credit losses, including as a result of the COVID-19 pandemic, rising interest rates and capital markets volatility, could occur that could adversely impact our operating results. The Environmental, Social and Governance, or ESG, risks associated with our potential collateral and borrowers also pose credit risks to us. We try to mitigate these risks by incorporating diligence practices into our investment process to identify material ESG matters related to a given investment. The nature and scope of our ESG diligence will vary based on the investment but may include a review of, among other things, energy management, pollution and contamination, accounting 44
--------------------------------------------------------------------------------
Table of Contents
standards and bribery and corruption. In addition, our Anti-Money Laundering Policy is designed to help prevent money laundering and terrorist financing.
We employ a long-term, fundamental value-oriented investment strategy and we aim to, on a loan-by-loan basis, construct an investment portfolio that is well-diversified across property types, geographies and sponsors.
The COVID-19 pandemic significantly impacted the commercial real estate markets, causing reduced occupancy, requests from tenants for rent deferral or abatement and delays in construction and development projects currently planned or underway. While the economy has improved significantly, macroeconomic trends associated with the COVID-19 pandemic have persisted and could continue to persist and impair our borrowers' ability to pay principal and interest due to us under our loan agreements. Operating Expenses
Our operating expenses, such as compensation costs and expenses related to managing our investment portfolio, may vary over time and are subject to a variety of factors, including overall economic and market environment, competitive market forces driving employee-related costs, and other related factors.
Allowance for Credit Losses
Our operating results are also impacted by the allowance for credit loss we record for loans held-for-investment using the Current Expected Credit Loss, or CECL, model pursuant to ASU 2016-13.
Changes in the Fair Value of Our Investments
We intend to hold our target investments for the long-term and, as such, they are carried at an amortized cost on our condensed consolidated balance sheets.
Although we intend to hold our target investments for the long-term, we may occasionally classify some of our debt securities as AFS. Investments classified as AFS are carried at their fair value, with changes in fair value recorded through accumulated other comprehensive income, a component of stockholders' equity, rather than through earnings. We do not intend to hold any of our investments for trading purposes.
Changes in Market Interest Rates
Our primary interest rate exposures relate to the yield on our loans and other investments and the financing cost of our borrowings. Changes in interest rates may affect our net interest income from loans and other investments. Interest rate fluctuations resulting in our interest and related expense exceeding interest and related income would result in operating losses for us. To the extent that our financing costs are determined by reference to floating rates, such as LIBOR, SOFR or aTreasury index, the amount of such costs will depend on the level and movement of interest rates. Until recently, interest rates remained at relatively low levels and theFederal Reserve maintained the federal funds rate target range at 0.00% to 0.25% for much of 2020 and 2021. However, in response to the inflationary pressures, earlier in 2022 theFederal Reserve began raising its federal funds rate target range and indicated that, due to the persistent high rate of inflation, it anticipates further increases in interest rates throughout 2022 and into 2023. Any such increases could adversely affect our results of operations and financial condition. In a period of rising interest rates, our interest expense on floating rate borrowings would increase, while any additional interest income we earn on our floating rate investments may be subject to caps and/or in-the-money floors that may limit the growth of our interest income until interest rates rise above such floors, or loans with such floors are repaid or refinanced, and may not compensate for such increase in interest expense. Any such scenario could adversely affect our results of operations, interest coverage ratio and financial condition. Although our strategy is to primarily originate, invest in and manage senior floating-rate commercial mortgage loans, from time-to-time we may acquire fixed-rate investments, which exposes our operating results to the risks posed by fluctuations in interest rates. To the extent that this applies to us, we may choose to actively manage this risk through the use of hedging strategies.
Summary of Results of Operations and Financial Condition
Our GAAP net loss attributable to common stockholders was$(17.4) million (or$(0.32) per basic weighted average share) for the three months endedJune 30, 2022 , as compared to GAAP net income attributable to common stockholders of$1.0 million (or$0.02 per basic weighted average share) for the three months endedMarch 31, 2022 . The decrease in GAAP results was primarily due to provision for credit losses of$(13.6) million and charge on early extinguishment of debt of$(13.0) million incurred during the three months endedJune 30, 2022 .
Comparison of the Three Months Ended
Net Interest Income
The following table presents the components of interest income and interest
expense for the three months ended
45
--------------------------------------------------------------------------------
Table of Contents (in thousands) Income Statement Data: June 30, 2022 March 31, 2022 Q2'22 vs Q1'22 Interest income: Loans held-for-investment$ 49,056 $ 47,298 $ 1,758 Cash and cash equivalents 223 23 200 Total interest income 49,279 47,321$ 1,958 Interest expense: Repurchase facilities 10,380 5,008 5,372 Securitized debt obligations 10,844 9,732 1,112 Convertible senior notes 4,572 4,546 26 Term financing facility 340 1,373 (1,033) Asset-specific financings 322 282 40 Senior secured term loan facilities 886 2,868 (1,982) Total interest expense 27,344 23,809 3,535 Net interest income 21,935 23,512 (1,577) The majority of our interest-earning assets and liabilities have floating rates based on an index (e.g., one-month LIBOR/SOFR) plus a credit spread. As a result, our asset yields and cost of funds are impacted by changes in market interest rates and credit spreads on investments and borrowings, as well as changes in the mix of our investment portfolio credit spreads due to new originations, loan amendments, additional fundings, upsizings and repayments.
Interest Income
Interest income for the three months ended
Interest Expense
Interest expense for the three months endedJune 30, 2022 , increased to$27.3 million from$23.8 million mainly due to higher average borrowings on repurchase facilities and higher short-term interest rates, partially offset by a lower average balance on higher-cost senior secured term loan facilities and the term financing facility. Provision for Credit Losses Consistent with the methodology used during the adoption of ASU 2016-13 onJanuary 1, 2020 , we continue to use a probability-weighted analytical model to estimate and recognize an allowance for credit losses on loans held-for-investment and their related unfunded commitments. Additionally, in determining the allowance for credit losses estimate throughJune 30, 2022 , we employed third party licensed macroeconomic forecasts, over the reasonable projection period. Significant inputs to our estimate of the allowance for credit losses include loan specific factors such as DSCR, LTV, remaining loan term, property type and others. As part of our quarterly review of our loan portfolio, we assess the repayment date of each loan, which is used to determine the contractual term for purposes of computing our CECL reserve. In certain instances, for loans with unique risk characteristics, we may instead elect to employ different methods to estimate loan losses that also conform to ASU 2016-13 and related guidance.
Allowance for credit losses related to off-balance sheet future funding
commitments is recorded as a component of other liabilities. Changes in the
provision for credit losses for both the assets and their related unfunded
commitments are recognized through net (loss) income on the condensed
consolidated statements of comprehensive (loss) income. The following table
presents the components of (provision for) benefit from credit losses for the
three months ended
Three Months Ended Three Months Ended June 30, March 31, (in thousands) 2022 2022 (Provision for) benefit from credit losses on: Loans held-for-investment$ (13,126) $ (3,364) Other liabilities (1,013) (324) Recoveries of amounts previously written off 512 - Total (provision for) benefit from credit losses$ (13,627) $ (3,688) 46
--------------------------------------------------------------------------------
Table of Contents During the three months endedJune 30, 2022 , we recorded a provision for credit losses of$(13.6) million , which included a recovery of amounts previously written off of$0.5 million . The increase in our estimate of allowance for credit losses was primarily driven by implementing in our analysis a more conservative macroeconomic forecast due to an elevated uncertainty for macroeconomic outlook due to inflationary pressures, continuing supply chain disruptions, interest rate volatility and other factors and an increase of$(4.0) million in the provision on a collateral-dependent loan.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the three months endedJune 30, 2022 , increased to$(13.0) million from$(5.8) million mainly due to the payoff of the remaining$100.0 million of senior secured term loan facilities and full repayment of the term financing facility, compared to a partial repayment of$50.0 million of the senior secured term loan facilities during the three months endedMarch 31, 2022 . Expenses
The following table presents the components of expenses for the three months
ended
Three Months Ended Three Months Ended June 30, March 31, (dollars in thousands) 2022 2022 Compensation and benefits $ 5,770$ 5,816 Servicing expenses $ 1,500$ 1,461 Other operating expenses $ 2,185$ 2,614 Annualized total operating expense ratio 3.5 % 3.7 %
Annualized core operating expense ratio (excluding non-cash equity compensation)
2.8 % 2.9 % We incur compensation and benefits expenses, servicing expenses related to the servicing of commercial real estate loans and other operating expenses. Compensation and benefits and servicing expenses for the three months endedJune 30, 2022 , as compared to the three months endedMarch 31, 2022 , were relatively stable quarter over quarter. The decrease in other operating expenses for the three months endedJune 30, 2022 , as compared to the three months endedMarch 31, 2022 , was primarily due to decrease in certain professional service fees. Our operating expense ratio, during the three months endedJune 30, 2022 , as compared to the three months endedMarch 31, 2022 , decreased modestly primarily due to lower other operating expenses. 47
--------------------------------------------------------------------------------
Table of Contents
Comparison of the Six Months Ended
Net Interest Income
The following table presents the components of interest income and interest
expense for the six months ended
(in thousands) Income Statement Data: June 30, 2022 June 30, 2021 YTD'22 vs YTD'21 Interest income: Loans held-for-investment $
96,354
Cash and cash equivalents 246 203 43 Total interest income 96,600 103,592 $ (6,992) Interest expense: Repurchase facilities 15,388 14,998 390 Securitized debt obligations 20,576 11,746 8,830 Convertible senior notes 9,118 9,062 56 Term financing facility 1,713 4,755 (3,042) Asset-specific financings 604 1,545 (941) Senior secured term loan facilities 3,754 10,933 (7,179) Total interest expense 51,153 53,039 (1,886) Net interest income 45,447 50,553 (5,106) The majority of our interest-earning assets and liabilities have floating rates based on an index (e.g., one-month LIBOR/SOFR) plus a credit spread. As a result, our asset yields and cost of funds are impacted by changes in market interest rates and credit spreads on investments and borrowings, as well as changes in the mix of our investment portfolio credit spreads due to new originations, amendments of existing investments, additional fundings, upsizings and repayments. Interest Income
Interest income for the six months ended
Interest Expense
Interest expense for the six months ended
Provision for Credit Losses
Allowance for credit losses related to off-balance sheet future funding
commitments is recorded as a component of other liabilities. Changes in the
provision for credit losses for both the assets and their related unfunded
commitments are recognized through net (loss) income on the condensed
consolidated statements of comprehensive (loss) income. The following table
presents the components of (provision for) benefit from credit losses for the
six months ended
Six Months Ended Six Months Ended June 30, June 30, (in thousands) 2022 2021 (Provision for) benefit from credit losses on: Loans held-for-investment$ (16,490) $ 8,996 Other liabilities (1,337) 316 Recoveries of amounts previously written off 512 - Total (provision for) benefit from credit losses$ (17,315) $ 9,312 48
--------------------------------------------------------------------------------
Table of Contents During the six months endedJune 30, 2022 , we recorded a provision for credit losses of$(17.3) million . The increase in our estimate of allowance for credit losses was primarily driven by a write-off of$(10.1) million on the sale of a loan and an increase of$(4.0) million in the provision on a collateral-dependent loan. The remaining increase in our provision for credit losses was related to changes in the portfolio mix and implementing in our analysis a more conservative macroeconomic forecast due to an elevated uncertainty for macroeconomic outlook due to inflationary pressures, continuing supply chain disruptions, interest rate volatility and other factors, partially offset by a recovery of amounts previously written off of$0.5 million .
Loss on Extinguishment of Debt
During the six months endedJune 30, 2022 , we recorded a loss on extinguishment of debt of$(18.8) million , compared to no repayments during the six months endedJune 30, 2021 . The increase is due to the payoff of the remaining$150.0 million of senior secured term financing facilities and the full repayment of the term financing facility during the six months endedJune 30, 2022 .
Expenses
The following table presents the components of expenses for the six months ended
Six Months Ended Six Months Ended June 30, June 30, (dollars in thousands) 2022 2021 Compensation and benefits$ 11,586 $ 10,477 Servicing expenses $ 2,961$ 2,440 Other operating expenses $ 4,799$ 4,691 Annualized total operating expense ratio 3.6 % 3.7 %
Annualized core operating expense ratio (excluding non-cash equity compensation)
2.8 % 2.8 % We incur compensation and benefits expenses, servicing expenses related to the servicing of commercial real estate loans and other operating expenses. Compensation and benefits expenses for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 , increased primarily due to an increase in compensation agreements in early 2022. Servicing expenses for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 , increased primarily due to an increase in billings under our servicing agreements. The increase in other operating expenses for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 , was primarily due to increased professional service fees. Our operating expense ratio during the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 , remained relatively stable year over year.
Liquidity and Capital Resources
Capitalization
To date we have capitalized our business primarily through the issuance and sale of shares of our common and preferred stock, borrowings under our secured financing facilities, issuance of CRE CLOs, borrowings under our senior secured term loan facilities and the issuance and sale of convertible notes. As ofJune 30, 2022 , our capitalization included$0.3 billion of corporate debt and$2.7 billion of loan-level financing. No portion of our corporate debt as ofJune 30, 2022 , matures beforeDecember 2022 , and our loan-level financing as ofJune 30, 2022 , is generally term-matched or matures in 2022 or later. Our$2.7 billion of loan-level financing as ofJune 30, 2022 , includes$1.3 billion of secured repurchase agreements,$1.4 billion ofCRE CLO securitizations, which are term-matched to the underlying assets, non-recourse and non-mark-to-market and$43.6 million of asset-specific financing facility. See Note 4 - Variable Interest Entities and Securitized Debt Obligations, Note 5 - Secured Financing Agreements, Note 6 - Convertible Senior Notes and Note 7 - Senior Secured Term Loan Facilities to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional details regarding our securitized debt obligations; our secured financing facilities; our secured convertible senior notes; and our senior secured term loan facilities, respectively.
Leverage
FromMarch 31, 2022 , toJune 30, 2022 , our debt-to-equity ratio, defined as total debt, net of cash, divided by total equity, increased from 2.5:1.0 to 2.7:1.0, mainly driven by a modest increase in loan-level financing and common share repurchases. As part of our investment strategy, we plan to finance our target assets with a moderate amount of leverage, the level of which may vary based upon the particular characteristics of our portfolio and market conditions. To that end, subject to maintaining our qualification as a REIT and our exclusion from registration under the Investment Company Act, we intend to use borrowings to fund the origination or acquisition of our target investments. Given our focus on senior floating-rate mortgage loans, we currently expect that such leverage will be, on a total debt-to-equity ratio basis, within a range of 3.0:1.0 and 3.5:1.0; however, our leverage may vary and differ from our expectations depending on market conditions and any steps we may take to strengthen our balance sheet and enhance our liquidity position. The amount of leverage we deploy for our target investments 49
--------------------------------------------------------------------------------
Table of Contents depends upon our assessment of a variety of factors, which may include the anticipated liquidity and any changes in value of the investments in our portfolio, the potential for losses in our portfolio, the gap between the maturities of our assets and liabilities, the availability and cost of financing our investments, our opinion of the creditworthiness of our financing counterparties, the health of theU.S. economy and commercial real estate financing markets, our outlook for the level and volatility of interest rates, the slope of the yield curve, the credit quality of our investments, the collateral underlying our investments and our outlook for investment credit spreads relative to LIBOR and/or SOFR.
Sources of Liquidity
Our primary sources of liquidity include cash and cash equivalents on our condensed consolidated balance sheets, any approved but unused borrowing capacity under our financing facilities, the net proceeds of future public and private equity and debt offerings, payments of principal, including loan repayments and prepayments, loan sales, interest we receive on our portfolio of assets and cash generated from our operating results. The following table sets forth our sources of liquidity as ofJune 30, 2022 : Six Months Ended (in thousands) June 30, 2022 Cash and cash equivalents $ 150,192 Approved but unused borrowing capacity on financing facilities - Total $ 150,192 We have access to liquidity through public offerings of debt and equity securities, subject to market conditions. To facilitate such offerings, inAugust 2021 , we filed a shelf registration statement with theSEC that is effective for a term of three years and expires inAugust 2024 . The amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific dollar limit on the amount of securities we may issue. The securities covered by this registration statement include: (i) common stock, (ii) preferred stock, (iii) depositary shares representing preferred stock and (iv) debt securities. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering. We may also access liquidity through our at-the-market stock offering program, pursuant to which we may sell, from time to time, up to 4,757,636 additional shares of our common stock as ofJune 30, 2022 . See Note 12 - Stockholders' Equity to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional details. Although we generally intend to hold our target investments as long-term investments, we have opportunistically sold, and may again in the future sell, certain of our assets in order to manage our liquidity needs, to meet other operating objectives and to adapt to market conditions. We cannot predict the timing and impact of future sales of our assets, if any. Since many of our assets are financed with secured financing facilities and/or CRE CLOs, a significant portion of the proceeds from sales of our assets, prepayments and scheduled amortization would be used to repay balances under these financing arrangements. We remain focused on actively managing our balance sheet and enhancing our liquidity position to best position us for the market environment, satisfy our loan future funding and financing obligations and to make new investments, which we expect will cause us to take, and in some instances has already caused us to take, some or all of the following actions: raise capital from offerings of equity and/or debt securities, on a public or private basis; borrow additional capital; post additional collateral; sell assets; and/or change our dividend policy, which we will continue to evaluate in respect of future quarters based upon customary considerations, including market conditions and distribution requirements to maintain our REIT status. At any given time and from time to time we may be evaluating or pursuing one or more transactions, including loan sales, capital markets activities and other sources of funding, to improve our liquidity or to refinance our debt or may otherwise seek transactions to reduce our interest expense or leverage and extend our debt maturities, which transactions, depending on market conditions and other factors, could result in actual losses and/or otherwise negatively impact our results of operations in one or more periods. Liquidity Needs In addition to our loan origination activities and general operating expenses, our primary liquidity needs include interest and principal payments under our$3.0 billion of outstanding borrowings under our repurchase facilities, collateralized loan obligations, asset-specific financing facility and convertible senior notes;$358.7 million of unfunded loan commitments; and dividend distributions to our preferred and common stockholders.
Financing Availability
We are subject to the availability and cost of financing to successfully execute on our business strategy and generate attractive risk-adjusted returns to our stockholders. Much of our financing is in the form of repurchase facilities or other types of credit facilities provided to us by our lender counterparties. We mitigate this counterparty risk by seeking to diversify our lending partners, focusing on establishing borrowing relationships with strong counterparties and continuously monitoring them through a thoughtful approach to counterparty risk oversight. Additionally, as part of our broader risk management strategy, and to the extent available in the market, we finance our business through other means which may include, but not be limited to, CRE CLOs, note sales and the issuance of unsecured debt and equity instruments. We continue to actively explore additional 50
--------------------------------------------------------------------------------
Table of Contents types of funding facilities in order to further diversify our financing sources. The COVID-19 pandemic and sharp increases in interest rates have resulted in significant disruptions in financial markets and uncertainty about the overall macroeconomic outlook. Declines in economic conditions could negatively impact real estate and real estate capital markets, which could make it more difficult for us to obtain or maintain financing.
The following table provides the maturities of our repurchase facilities,
asset-specific financing facility, term financing facility, securitized debt
obligations, long-term senior secured term loan facilities and convertible
senior notes, net of deferred debt issuance costs, as of
June 30, December 31, (in thousands) 2022 2021 Within one year$ 1,888,990 $ 1,530,671 One to three years 1,104,070 1,096,112 Three to five years 21,599 311,710 Five years and over - - Total$ 3,014,659 $ 2,938,493 Cash Flows For the three months endedJune 30, 2022 , our restricted and unrestricted cash and cash equivalents balance decreased approximately$34.4 million , to$219.7 million . The cash movements can be summarized by the following: •Cash flows from operating activities. For the three months endedJune 30, 2022 , operating activities increased our cash balances by approximately$9.6 million , primarily driven by our financial results. •Cash flows from investing activities. For the three months endedJune 30, 2022 , investing activities decreased our cash balances by approximately$91.0 million , primarily driven by originations of loans held-for-investment, offset by repayments of loans held-for-investment and proceeds from loan sales. •Cash flows from financing activities. For the three months endedJune 30, 2022 , financing activities increased our cash balances by approximately$47.0 million , primarily driven by proceeds from repurchase facilities and issuance of preferred stock, offset by principal payments on repurchase facilities, principal payments on securitized debt obligations, repayment of senior secured term loan facilities, the term financing facility and share repurchases.
Corporate Activities
Senior Secured Term Loan Facilities Payoff
During the three months endedJune 30, 2022 , we prepaid the remaining$100.0 million of the$225.0 million we borrowed under our senior secured term loan facilities, resulting in a total payment of approximately$105.7 million , inclusive of the principal amount, prepayment penalty and accrued interest. As a result of this repayment, we realized a charge on early extinguishment of debt of approximately$(11.3) million , or$(0.21) per basic share, comprised of the prepayment penalty and a charge-off of unamortized discount including transaction costs.
Dividends
We generally intend to distribute substantially all of our taxable income each year (which does not necessarily equal net income as calculated in accordance with GAAP) to our stockholders to comply with the REIT provisions of the Code. In addition, our dividend policy remains subject to revision at the discretion of our board of directors. All distributions will be made at the discretion of our board of directors and will depend upon, among other things, our actual results of operations and liquidity. These results, and our ability to pay distributions, will be affected by various factors, including our taxable income, our financial condition, our maintenance of REIT status, restrictions related to our financing facilities, applicable law and other factors as our board of directors deems relevant.
Inflation
Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors typically influence our performance more than inflation does. However, changes in interest rates may correlate with inflation rates or changes in inflation rates. Recently, theFederal Reserve approved increases to its federal funds rate target range and has indicated that, in light of the high rate of inflation, it foresees further increases in interest rates throughout the year and into 2023 and 2024. Our condensed consolidated financial statements are prepared in accordance with GAAP and our distributions will be determined by our board of directors consistent with our obligation to distribute to our stockholders at least 90% of our REIT taxable income on an annual basis in order to maintain our REIT qualification; in each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation. 51
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source