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Granite Point Mortgage Trust Inc (GPMT) Q4 2020 Earnings Call Transcript

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Picture supply: The Motley Idiot.

Granite Level Mortgage Belief Inc (NYSE:GPMT)
This fall 2020 Earnings Name
Mar 5, 2021, 10:00 a.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Individuals

Ready Remarks:

Operator

Good morning. My identify is Chad, and I will probably be your convention facilitator. Right now, I want to welcome everybody to Granite Level Mortgage Belief’s Fourth Quarter and 12 months-Finish 2020 Monetary Outcomes Convention Name. [Operator Instructions]

I might now like to show the decision over to Chris Petta with Investor Relations for Granite Level. Please go forward.

Chris Petta — Investor Relations Officer

Thanks, and good morning everybody. Thanks for becoming a member of our name to debate Granite Level’s Fourth Quarter and 12 months-Finish 2020 Monetary Outcomes. After my introductory feedback, Jack will evaluate our present enterprise actions and supply a short recap of market circumstances. Steve Alpart will focus on our portfolio, and Marcin will spotlight key gadgets from our monetary outcomes.

The press launch and monetary tables related to in the present day’s name have been filed yesterday with the SEC, and our Kind 10-Ok was filed this morning. For those who should not have a duplicate, you would possibly discover them on our web site or on the SEC’s web site at sec.gov.

In our earnings launch and slides, which are actually posted within the Investor Relations part of our web site, we now have offered a reconciliation of GAAP to non-GAAP monetary measures. We urge you to evaluate this info along side in the present day’s name. I might additionally like to say that this name is being webcast and could also be accessed on our web site in the identical location.

Earlier than I flip the decision over to Jack, I want to remind you that remarks made by administration throughout this convention name and the supporting slides could embody forward-looking statements, that are unsure and outdoors of the corporate’s management. Ahead-looking statements mirror our views relating to future occasions and are sometimes related to using phrases reminiscent of anticipate, anticipate, estimate and consider or different comparable expressions. We warning traders to not rely unduly on forward-looking statements. They indicate dangers and uncertainties and precise outcomes could differ materially from expectations. We urge you to rigorously think about the dangers described in our filings with the SEC, together with our most up-to-date 10-Ok and 10-Q studies, which can be obtained on the SEC’s web site at sec.gov. We don’t undertake any obligation to replace or appropriate any forward-looking statements, if later occasions show them to be inaccurate.

I’ll now flip the decision over to Jack.

Jack A. Taylor — Chief Govt Officer, President and Director

Thanks, Chris and good morning everybody. We want to welcome you all to our fourth quarter and year-end 2020 earnings name. I am joined in the present day by Steve Alpart, our CIO and Co-Head of Originations; Marcin Urbaszek, our CFO, Steve Plust our COO; and Peter Morral, our Co-Head of Originations; and newly appointed Chief Improvement Officer. We hope everybody continues to be secure and wholesome as all of us navigate the continued impacts of the pandemic.

2020 was a difficult yr for all on many fronts, notably these arising from the worldwide pandemic. Regardless of the disruptions to the general economic system and the industrial actual property market in, our technique centered round delivering enticing risk-adjusted returns, whereas offering important draw back safety, has been proving out even via the extreme market dislocations. Our defensively positioned and well-diversified funding portfolio consisting of 99% senior first mortgage floating-rate loans has carried out properly regardless of the market turbulence. By way of our energetic administration of either side of our stability sheet because the onset of the pandemic, we now have proactively delevered our financing services, improved our liquidity place and labored with our debtors to assist them navigate marketing strategy interruptions at their properties.

We consider our efficiency final yr as evidenced by the $1.17 per share of distributable earnings generated by our enterprise has demonstrated the resilience of our funding and financing technique throughout even probably the most risky and unsure markets. Regardless of the numerous challenges, we completed an amazing deal throughout 2020. Pushed by the robust credit score high quality of our loans and our proactive asset administration technique, we obtained 99% of contractual curiosity funds and skilled no realized principal credit score losses. We additionally benefited from our robust relationships with our financing companions and their belief in our conservative credit score philosophy and the standard of our property and debtors.

We work proactively with our lenders to methodically delever our credit score services. This deliberative method enabled us to be affected person and safe a $300 million versatile strategic financing dedication at enticing phrases to higher place the corporate to reap the benefits of rising funding alternatives within the present surroundings and for future development prospects as they develop.

With the improved liquidity and stability sheet stability, our Board reinstated our quarterly dividend within the second half of 2020 as our portfolio continues to generate robust earnings and money flows. Moreover, in December, the Board declared a particular money dividend of $0.25 per widespread share along with the common quarterly dividend of $0.20 per share, reflecting the efficiency of our enterprise.

Lastly, we achieved a major milestone by finishing our transition to an internally managed industrial mortgage REIT on the finish of the yr. Internalization carries many advantages, together with decrease bills, higher transparency and the alignment of curiosity with our stockholders, whereas reaching better economies of scale as we develop our enterprise. Our actions final yr have been designed and positioned Granite Level for robust efficiency in 2021 and past.

Our priorities for this yr embody redeploying our extra liquidity into enticing investments to help our earnings and dividends, additional diversifying our funding sources and rising the proportion of credit score non-mark-to-market financing and persevering with the energetic administration of our portfolio. We’ve got already made notable progress towards these targets. Granite Level is reentering the mortgage origination market, together with the development within the broader capital markets, together with that for industrial actual property CLOs. There was an accelerating uptick in actual property transaction and lending exercise that has to date been predominantly centered on choose property sorts, however is increasing. Granite Level has a longtime status as a robust counterparty within the lending market. And in consequence, over time, we now have closed a significant variety of repeat transactions with our debtors.

Over the previous couple of years, we now have confirmed our skill to generate a big quantity of enticing funding alternatives assembly our underwriting and return standards. Whereas the origination quantity in 2021 will rely on a wide range of components, we anticipate that the tempo of our new originations will considerably rely on the quantity of mortgage repayments we obtain over the course of the yr.

As we beforehand introduced on February 4, we entered into a brand new credit score settlement with Goldman Sachs, which offered us with about $349 million of term-matched and non-mark-to-market financing, whereas repaying all beforehand excellent borrowings on our Goldman Sachs repurchase facility. This transaction illustrates the energy of our lender relationships and the credit score high quality of our mortgage. It additionally brings the proportion of our credit score non-mark-to-market financing to 51% of loan-level borrowings, which we anticipate to develop additional over the course of the yr.

As well as, with respect to diversifying our funding sources, we now have persistently seen the CLO market as a horny supply of funding offering us with non-mark-to-market term-matched and non-recourse financing at a aggressive price of funds. Having been a repeat and well-respected issuer within the CLO market supplies us with the flexibility to be opportunistic in our total stability sheet administration technique. Topic to market circumstances, we’re positioned to and would anticipate accessing the CLO market throughout this yr to additional diversify our funding sources and enhance our price of funds, whereas rising our non-mark-to-market borrowings.

The credit score traits of our total portfolio remained resilient. The final word credit score consequence for our investments and different market contributors will rely considerably on the restoration path of the general economic system and the industrial actual property sector, specifically. We’ll proceed to actively handle our investments and any potential credit score occasions. We’re happy by the efficiency of our portfolio so far, consider that there’s a lot of worth embedded in it, and are fairly inspired by the persevering with help of collateral properties by our debtors.

I am very pleased with our complete crew’s efforts and the ensuing efficiency of our enterprise final yr. With the latest developments round COVID-19 vaccines and their distribution and the expectation of continued financial and financial help, we’re optimistic concerning the future forward for the economic system and industrial actual property, whereas understanding the continued nearer-term challenges. Our Board of Administrators and the administration crew are enthusiastic about the way forward for Granite Level and are assured that we will ship enticing returns for our stockholders over time now as an internally managed REIT.

I might now like to show the decision over to Steve Alpart to debate our portfolio and up to date actions in additional element.

Stephen Alpart — Vice President, Chief Funding Officer and Co-Head of Originations

Thanks, Jack. And thanks all for becoming a member of our name this morning. Over the course of 2020 and into early 2021, our portfolio has carried out very properly contemplating the key financial and actual property market challenges brought on by the pandemic. Our curiosity collections have remained robust throughout 2020, operating at about 99% of contractual funds via February. We ended the yr with a portfolio excellent principal stability of $3.9 billion throughout 103 loans with about $500 million in future funding obligations, which account for under about 11% of our complete dedication, reflecting the light-to-moderate transitional nature of the enterprise plans we sometimes underwrite. Our future funding obligations have declined over the course of the yr because of fundings, repayments, restricted opportunistic mortgage gross sales earlier this yr, and choose mortgage modifications that extinguish both a portion or all the future funding dedication on amended loans.

In the course of the fourth quarter, we funded $51 million of mortgage balances on prior commitments, which introduced our complete fundings for the yr to $239 million. We really feel very snug with the extent and tempo of those future fundings and proceed to finance them with our lenders. As total market sentiment stabilized and improved over the course of final yr, we started to see transaction and financing exercise slowly reemerge in the actual property sector on choose property sorts, and these optimistic traits are additional progressing in 2021. In keeping with these enhancing market circumstances, our quantity of mortgage repayments elevated within the second half of the yr, and we obtained about $195 million of pay-offs within the fourth quarter alone, bringing our complete repayments for the yr to about $517 million. Given the numerous market dislocations final yr, we consider these repayments reveal the energy and high quality of our portfolio.

To date within the first quarter of this yr, we now have realized about $70 million of repayments they usually’re very arduous to foretell. We anticipate that the tempo of our mortgage repayments within the close to time period must be much like what we now have skilled during the last couple of quarters, however under our historic tempo of about 25% yearly. We stay extremely engaged with our debtors and are working collaboratively with these experiencing delays and enterprise plans ensuing from the pandemic.

In the course of the fourth quarter, we modified 12 loans with an mixture principal stability of about $685 million and deferred $4.2 million of curiosity, which was capitalized and added the principal. Most of those modifications are associated to loans which have been beforehand amended. And we’re gratified to see these debtors proceed to help their properties. In mixture, throughout 2020, we modified 46 loans with a complete principal stability of about $1.8 billion and deferred and added the principal stability of roughly $8.6 million of curiosity earnings. As of December 31, 2020, we had 41 of those 46 loans remaining in our portfolio. Of those 41 loans, 11 had energetic curiosity deferrals at December 31. As we mentioned beforehand, most of our modifications of all the mix of cost deferrals, reallocation of reserve accounts and the place acceptable, amendments to sure extension circumstances along side a further fairness funding by the sponsor on the time of the modification and/or different types of ongoing credit score help.

Our loans are secured by high-quality properties situated in robust markets owned by institutional sponsors with important fairness to guard. We’ll proceed to work with them as we transfer ahead. Whereas the actual property capital markets have decidedly begun to get better, we anticipate property fundamentals to comply with with the tempo and extent of the restoration to range by sector and market. Consequently, we’re intently monitoring a couple of loans with an mixture principal stability of about $240 million, most of which have been notably affected by the pandemic. This group contains loans secured by a Minneapolis Lodge, a mixed-use property in New York, a pupil housing property in Kentucky, and a retail property in California. The resort mortgage is a $67 million senior mortgage collateralized by a well-located absolutely renovated property. This resort has been adversely affected by market circumstances and the associated important decline in enterprise journey. Consequently, we downgraded this mortgage to a threat score of 5 on the finish of the yr. We’re in ongoing discussions with the borrower and are evaluating a wide range of potential choices. We stay in energetic communications with all of those debtors and are monitoring these conditions very intently. General, we really feel excellent concerning the credit score high quality of our well-diversified portfolio and consider that it’ll ship robust outcomes over time.

As Jack mentioned earlier, we are actually ready to reap the benefits of new funding alternatives and have begun to judge new mortgage originations throughout property sectors. We’re within the means of constructing our pipeline and assessing potential new mortgage investments and have begun quoting new transactions. We anticipate to be closing new loans in some unspecified time in the future through the second quarter of 2021. Our tempo of recent mortgage originations in 2021 will largely rely on the quantity of mortgage repayments and the provision of enticing investments, assembly our desired return and credit score traits.

With that, I’ll now flip the decision over to Marcin for a extra detailed evaluate of our monetary outcomes.

Marcin Urbaszek — Chief Monetary Officer

Thanks, Steve. Good morning everybody, and thanks for becoming a member of us in the present day. Earlier than I focus on our fourth quarter monetary outcomes, I would like to spotlight that starting with this quarter and much like plenty of our publicly traded industrial mortgage REIT friends, we now have adopted distributable earnings as a key non-GAAP monetary measure and as a substitute for core earnings. That is solely a change in terminology and the calculation itself and reconciliation to GAAP earnings is similar because it was for core earnings.

Turning to our monetary outcomes. Yesterday afternoon, we reported fourth quarter GAAP internet earnings of $23.1 million or $0.42 per primary share, which included $8.5 million or $0.16 per share lower in our CECL reserve and $2.6 million or $0.05 per share of extra restructuring prices associated to our internalization course of, which closed on December 31. The lower in our CECL reserves was primarily pushed by the decline within the excellent stability of our portfolio and considerably improved macroeconomic forecast employed in our evaluation. At year-end, our allowance for credit score losses was $72.2 million or $1.31 per share and represented about 163 foundation factors of our complete mortgage commitments.

For full-year 2020, we reported a GAAP lack of $40.5 million or $0.73 per primary share, which primarily displays prices associated to our internalization of $46.3 million or $0.84 per share and provision for credit score losses of $53.7 million or $0.97 per share recorded through the yr. This stuff greater than offset the robust earnings generated by our portfolio in 2020. Distributable earnings for the fourth quarter have been $18.4 million or $0.33 per share and excluded the non-cash provision for credit score loss profit and the internalization-related restructuring prices. Our e book worth at year-end was $16.92 per widespread share, which was largely unchanged versus the prior quarter and included $1.31 per share of cumulative impression of CECL.

In December, our Board of Administrators declared an everyday widespread inventory money dividend of $0.20 per share and a non-recurring particular money dividend of $0.25 per share, each of which have been paid in January of 2021. The particular dividend was associated to the distribution of a portion of our undistributed taxable earnings gathered over the course of 2020.

Our internet curiosity earnings for the fourth quarter decreased by about $6.5 million or $0.12 per share to $27.4 million primarily for 2 causes. First, our common portfolio stability declined quarter-over-quarter. And second, our curiosity expense elevated as a result of first full quarter recognition of prices related to our time period mortgage financing, which closed late in September. For the complete yr, our internet curiosity earnings improved by about $15.5 million from 2019, primarily pushed by a lower in curiosity expense as LIBOR declined considerably over the course of the yr. In 2020, our curiosity earnings benefited from the LIBOR flooring embedded in our loans as our portfolio is 98% floating price with a median flooring of 156 foundation factors as of December 31. About 87% of our loans have LIBOR flooring of at the very least 1%. Within the close to time period, we anticipate to proceed to revenue from the broader internet curiosity margin, supported by the LIBOR flooring. As we obtain extra mortgage repayments and originate new investments, our internet curiosity unfold is more likely to compress over time as LIBOR flooring on newly originated loans will probably be typically set nearer to present charges, in line with market requirements.

Our complete working bills declined considerably in This fall primarily associated to the popularity of the vast majority of internalization-related prices within the prior quarter. Going ahead, as an internally managed REITs, we’d now not incur any administration or incentive charges. As an alternative, we will probably be reporting compensation-related bills starting within the first quarter of 2021. We ended the yr with about $260 million in money available and as of March 3, had roughly $235 million in money, plus our possibility to attract a further $75 million in time period mortgage proceeds via September of this yr, which is topic to cost of an extension charge.

Our complete debt-to-equity leverage at December 31 was 3.2 instances, largely unchanged from the prior quarter, and our recourse leverage, which excludes our CLOs, was at 2.2 instances. Given present market circumstances, we’d anticipate our complete leverage to be within the vary of three.0 to three.5 instances debt-to-equity relying on developments in our portfolio.

Thanks once more for becoming a member of us in the present day. And I’ll now ask the operator to open the decision to questions.

Questions and Solutions:

Marcin Urbaszek — Chief Monetary Officer

Thanks. We’ll now start the question-and-answer session. [Operator Instructions] And the primary query will come from Doug Harter with Credit score Suisse. Please go forward.

Douglas Harter — Credit score Suisse Securities (USA) LLC — Analyst

Thanks. You talked about that you just’d be reentering the mortgage origination market. Are you able to simply discuss your expectations for sort of deploying your capital place and sort of the outlook for balances? Do you anticipate to sort of substitute run-off to have the ability to internet develop the portfolio? Simply any ideas on sort of in all probability to provide the outlook?

Jack A. Taylor — Chief Govt Officer, President and Director

Hello, Doug. Thanks for becoming a member of us. That is Jack. And I will be pleased to reply you that query. To date, as we have talked about, we now have been centered on managing our portfolio and are working with our debtors and different counterparties, however with the rise in exercise out there pretty dramatically during the last month or so, we’re fairly snug going again in. And with respect to the ramping up of our pipeline and the quantity, I feel we will probably be wanting — first to reply your query, we will probably be changing the run-off and we will probably be in search of portfolio development in a while within the yr. Now, to be somewhat extra particular, it’s transferring goal on the quantity, as a result of there’s going to rely on a wide range of components. One which we talked about earlier is the prepayment price that will probably be a major driver of the origination quantity, as a result of as these loans repaid, that can present extra liquidity to make new loans to interchange gross sales.

We’ve got offered estimates in prior years about our price of prepayments saying that for portfolio, our expertise over a long time has been portfolio like this, tends to repay at a price of about 25% per yr. Given the present scenario, we’d anticipate that to be a decrease quantity. We have been experiencing it decrease. Simply to sort of bracket it even throughout final yr, albeit the primary couple of months have been a extra regular interval, we have been about half that quantity, I feel in opposition to our regular tempo. And so, it might be affordable to imagine we’d be between the low of half the quantity and the 25% price, however I feel what we’ll see because the transaction exercise refinancing and acquisitions picks up through the course of the yr, there will probably be a gradual slope up in origination volumes after which, there will probably be someplace between, name it, the $500 million to $1 billion tempo, in all probability extra doubtless on the upper finish.

Douglas Harter — Credit score Suisse Securities (USA) LLC — Analyst

Nice. After which, you talked about sort of hoping to sort of have the ability to subject a CLO this yr. I suppose, simply how ought to we take into consideration what — to the extent that you just’re in a position to subject — what financing with that substitute sort of warehouse traces, with that substitute sort of the senior secured that you just entered into and since September. Simply ideas on that?

Jack A. Taylor — Chief Govt Officer, President and Director

This primarily could be new originations plus warehouse traces. It could actually — we’re not signaling something to the market, nevertheless it is also partly refinance of present CLO debt. So I might say primarily it will likely be warehouse traces. And proper now, that market is sort of robust. I am going to level out owing a major half to the beautiful robust efficiency of the bridge loans within the present CLO securitizations excellent, together with ours. And so, that ahead pipeline is robust. It has been properly met by a robust demand from the investor base, and it is truly even been opening up now to incorporate extra of flexibility for ramp intervals and in addition for reinvestment. So, fairly optimistic set of developments for the general market. And as I mentioned earlier, we have all the time positioned ourselves to be repeat issuer in that market and would hope to entry that through the course of the yr.

Douglas Harter — Credit score Suisse Securities (USA) LLC — Analyst

Nice. Thanks, Jack.

Jack A. Taylor — Chief Govt Officer, President and Director

Thanks.

Operator

And the subsequent query will probably be from Jade Rahmani with KBW. Please go forward.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

Sure. Thanks very a lot. Simply beginning with the money circulate assertion, once I have a look at the fourth quarter based mostly in your 10-Ok, I calculate a unfavorable $16 million of money circulate from operations with a unfavorable $29 million or so working capital adjustment. So I simply need to be sure, does that embody a payable to the exterior supervisor that might clarify that distinction or is there anything we must always know that might have induced the money circulate within the fourth quarter to be unfavorable?

Marcin Urbaszek — Chief Monetary Officer

Hey, Jade. It is Marcin. Yeah, there was clearly a payable to the supervisor of $44.5 million within the fourth quarter. So — after which, clearly, we now have — there’s a few different gadgets in there, however…

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

Okay. So I feel that is a non-recurring expense and due to this fact, money circulate from operations must be optimistic going ahead?

Marcin Urbaszek — Chief Monetary Officer

That will be the expectation, sure.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

And once we look traditionally on the administration charges, plus working bills and inventory compensation, I feel it was $10 million, $9.6 million within the fourth quarter. So annualized, that might be $38.4 million. I feel there might be some modest enchancment to that, however for now, we’re projecting round $40 million of G&A, about $35 million in working bills and $5 million in inventory compensation. Is that affordable to imagine as a run price for the corporate at its present dimension?

Marcin Urbaszek — Chief Monetary Officer

Look, it is arduous to foretell precisely what the numbers are going to be. After we introduced the internalization, we mentioned that we have been anticipating, sort of, $30 million to $35 million run price of bills. Excluding the non-cash fairness comp, I might say that the non-cash fairness comp has been operating someplace round $5 million to $5.5 million a yr. It might go up somewhat bit this yr. So I feel we’re in all probability on the ballpark, however there will probably be some clearly variability on that.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

And on the money aspect, is there any elevated asset administration bills or different back-office capabilities, administrative bills we must be anticipating or is that inclusive within the $30 million to $35 million that is already that you’ve got already put on the market?

Marcin Urbaszek — Chief Monetary Officer

No, that is inclusive of that. So I might say, on a net-net foundation, sort of apples-to-apples, the sort of core run price money bills must be decrease this yr than in prior years.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

Okay. I feel I’ve requested Jack this on many of those previous calls. Simply given the administration crew’s historical past within the enterprise and now you are internally managed, perhaps it might be extra open to different enterprise methods, would you discover a CMBS conduit or maybe an asset administration car? The inventory is presently buying and selling at about 65% of e book worth, one of many lowest friends. So clearly, the market is , primary, what the credit score threat outlook is, but in addition two, the present dividend yield. It is at 7% yield and friends, the common is about 8.5% or so. So both the inventory goes up since you raised the dividend or maybe there’s another accretive solution to develop earnings. I am questioning what your ideas are on these two potential enterprise traces.

Marcin Urbaszek — Chief Monetary Officer

Hello, Jade. Thanks. Sure, I do recall you having requested up to now and are pleased to reply now. We’ll, at the beginning, be accessing, first off the inspiration for our development, if you’ll, and our share worth is defending our present credit utilizing our robust origination capabilities and redeploying the capital, enhancing our price of funds and rising our earnings and dividends. And that ought to drive this share worth and by enhancing out our credit as a result of we expect that the portfolio is performing fairly properly and is not acknowledged by the market but. That is the inspiration although for every other enlargement. And we consider that the floating price market is for non-bank lenders is much more in demand, extra necessary to industrial actual property finance now than it has been up to now. So, our main focus will probably be there.

Having mentioned all that, we are going to over time be different alternatives. Peter Morral is on the decision with us. The remainder of the crew are — will probably be taking a thought-about have a look at adjoining companies. We’re not signaling something now. There may be nothing particular to debate. However we’re — now that we’re in an internally managed REIT, we now have better flexibility to pursue any variety of avenues of extra development, however the main emphasis within the close to time period will probably be on enhancing out our credit and rising our earnings and dividends and specializing in our principal e book, and that might be the energy from which we will make the most of our actually sturdy origination capabilities to broaden our companies.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

And have you ever gotten any inbound curiosity from asset managers seeking to do potential joint ventures as a result of maybe on this present dislocated surroundings, there are outsized alternatives, a few of which candidly might embody the contribution of loans that within the close to time period, within the present GPMT portfolio, you talked about the $800 million [Indecipherable] might undergo some turbulence, however the underlying property might have a transparent path to worth creation and given the LTV of the corporate, might be an attention-grabbing funding alternative.

I’ve been sort of amazed that the mortgage REITs this cycle haven’t purchased again shares or have been extra artistic in worth creation methods. And given you are one of many solely internally managed corporations, does taking any REO, taking any loans into REO create the potential for outsized returns and perhaps create joint ventures or another methods that may assist reap the advantages for GPMT shareholders?

Jack A. Taylor — Chief Govt Officer, President and Director

So that you had rather a lot in there. Let me tackle the couple of them, which I feel have been the central ones. Positive, we have had some inbound inquiries. We do have the flexibility to supply outdoors capital sources with co-origination, it would not essentially need to be three way partnership however might be — we will present entry to hard-to-access market. These usually are not issues. Until you have constructed out an intentional construction and crew for accessing these markets, these loans, these investments, it is very arduous to entry on an entire mortgage foundation. So we will pursue that. Sure, there’s worth creation alternatives, which is all the time on a case-by-case foundation. However there could also be instances the place if a mortgage goes into REO, we expect it is higher to promote it off. There will probably be instances the place speculating in any respect by hypotheticals, however the place we expect it is higher to carry and to not promote into the deepest trough of the market or perhaps the second deepest, perhaps, 4, 5 months in the past was the deepest.

So we had that flexibility to do all these issues. We have accomplished them up to now. We have labored via portfolios and what we have discovered is true on level to what you simply requested Jade, which is there isn’t any one reply to any specific a part of your portfolio and even specific asset. In instances like this, you must take a extremely crafted individualistic method to every asset, however in your bigger [Phonetic] query, we’re properly in minds that we now have numerous worth we will current to co-investors for instance. They need to take part on loans with us and we now have had inbounding assortment.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

Thanks. The collections numbers you cited, which appear actually robust. I might say that is an enormous each firm has the identical factor. It is on contractual mortgage agreements, which have been modified. And I feel you mentioned that 46 loans have been modified, in order that’s roughly half of the portfolio. Have you learnt what collections are relative to pre-COVID loans granted that some have repaid? And also you guys have had robust repayments, however perhaps when you might give a way of what that statistic would seem like pre-COVID?

Stephen Alpart — Vice President, Chief Funding Officer and Co-Head of Originations

Hey, Marcin — sorry, Jade, it is Steve. Good morning. I may give you a statistic for 2020 the place we deferred about $8.6 million of curiosity funds. In order that’s about 3.5% of complete collections, if we had not entered into these forbearance agreements. Just about all of these forbearance agreements have been deferrals, not waivers. Necessary to notice that the majority of them have been — as we mentioned on prior calls, have been partial forbearance and tended to be quick time period, however for the yr, was about $8.6 million.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

Okay. That is good to know. And what is the proportion of loans on non-accrual presently?

Stephen Alpart — Vice President, Chief Funding Officer and Co-Head of Originations

We presently have one comparatively small mortgage on non-accrual. And it is the one which we highlighted earlier, which is the New York blended use property.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

Okay. Nice. I am going to get again within the queue in case there are different questions on the road.

Marcin Urbaszek — Chief Monetary Officer

Jade, that is Marcin. I simply need to make clear one thing. In your first query, you referred to observe record of about $800 million. I do not — I am undecided if I might — that is how I might classify all these loans. I feel, not all for 4-rated loans are you sort of watch record loans. They clearly have some elevated threat in them. And — however simply because we put them as a 4 score, it does not imply that we anticipate them to have a loss. I feel if you wish to sort of consider a quarter-on-quarter watch record, I am going to have in all probability extra give attention to the $200-and-some million of loans that Steve Alpart referred to in his ready remarks, which we’re clearly pleased to debate, if anybody has any questions on that.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

Okay. Thanks very a lot.

Operator

And the subsequent query will probably be from Charlie Arestia with J.P. Morgan. Please go forward.

Charlie Arestia — J.P. Morgan — Analyst

Hey, good morning guys. Thanks for taking the questions. I needed to ask about your repo services. I am wanting on the maturities developing within the subsequent few months which can be disclosed in your 10-Ok. As you talked about, the Goldman facility was refinanced in February, however I am questioning when you can present an replace on these different services and sort of simply extra broadly, how conversations are going along with your lenders. It appears anecdotally just like the banks are fairly keen to extend utilization, however simply curious to get your tackle that.

Marcin Urbaszek — Chief Monetary Officer

Hey, Charlie. It is Marcin. Good morning. Thanks for becoming a member of us. I might positively agree along with your final assertion. I feel the sentiment within the banking neighborhood is extra bullish than it was. Banks are wanting to do enterprise. So we really feel excellent about that. And that is clearly a part of the explanation why we really feel snug reentering the originations market as a result of clearly if you make a mortgage, you must discover a solution to finance it. So it is all excellent news on that entrance of dangers.

Relating to your query on maturities, clearly Goldman has a maturity in Could. We refinanced all these property with this new settlement, which we expect is a superb non-mark-to-market financing for us. It supplies a way more flexibility on the stability sheet. That facility remains to be excellent. We’ll resolve whether or not to increase it or terminate it. It is doubtless we are going to prolong it to have extra flexibility. The opposite two, Wells Fargo, we now have an possibility to increase that facility, which we intend to train. And we’re in energetic discussions with Morgan Stanley, however extending that facility as properly. Once more, we actually have not had any points with our lenders. Up to now, we have all the time prolonged these services, and we’re in good standing and constructive dialog with all of them. So I would not fear about any of these.

Charlie Arestia — J.P. Morgan — Analyst

Okay. Thanks, Marcin. I recognize that. After which, actual shortly on the resort property that was downgraded to five. Was this purely a problem of the money circulate is being disrupted by COVID? Perhaps, I am focusing an excessive amount of on the brand new info out there that you just guys disclosed. I am simply questioning if there’s anything there that we must be excited about. After which, have you ever guys disclosed what the brand new maturity of that mortgage is?

Stephen Alpart — Vice President, Chief Funding Officer and Co-Head of Originations

Hey, good morning. It is Steve. I am going to present some just a few coloration on the resort asset. So I feel a few of this has already been disclosed, nevertheless it’s a well-located, just lately renovated full-service resort within the Minneapolis market, very robust institutional sponsorship with the numerous fairness funding. After we shut this mortgage, our sponsor had simply accomplished a significant reno. So the resort seems to be actually nice. The marketing strategy was to ramp operations as a rebranded resort and finally, promote the asset.

When the pandemic started, as we noticed throughout the entire nation, resort operations have been impacted, this impacted [Phonetic] this resort. It impacted your complete Minneapolis market. Since then, the borrower right here has continued to make a major and ongoing dedication — monetary dedication to the asset, however going to your query, simply given the scenario, it appears prudent to maneuver the chance rating from 4 to five in This fall. That however, we proceed to have very productive conversations with the borrower. I simply need to simply spotlight that it is a very high-quality institutional asset and appears it is a fantastically renovated resort.

Charlie Arestia — J.P. Morgan — Analyst

Thanks, Steve. I recognize the colour.

Stephen Alpart — Vice President, Chief Funding Officer and Co-Head of Originations

Positive.

Operator

And the subsequent query comes from Stephen Legal guidelines with Raymond James. Please go forward.

Stephen Legal guidelines — Raymond James — Analyst

Hello, good morning. Marcin, to comply with up on Charlie’s query, the brand new Goldman facility, are you able to discuss the price of that to get the extra enticing traits, attempting to consider how financing prices are going to development right here within the close to time period given the shift in combine or shifting financing services?

Steven Plust — Vice President and Chief Working Officer

Hey, Stephen. That is Steve Plust. Good morning.

Stephen Legal guidelines — Raymond James — Analyst

Good morning, Steve.

Steven Plust — Vice President and Chief Working Officer

It is a few $450 million transaction. The coupon is LIBOR 361 foundation factors. It’s going to enhance our price of funds barely, nevertheless it completed crucial issues for us. It supplies matched-term non-recourse non-mark-to-market financing for the property. A couple of third of the property are resort and the opposite two-thirds are property that we expect would historically conform to a CLO. So we’re pleased to place these property on long-term non-recourse financing. And the construction additionally offers us the flexibility to tug out $100 million for loans within the pool that we expect do the truth is conform to CLO profiles with none penalty. So it is a very versatile construction for us and at a comparatively modest price of funds.

Stephen Legal guidelines — Raymond James — Analyst

Nice. I recognize the colour there, Steve. Form of excited about the portfolio returns, dividend coverage, Marcin, are you able to contact on what undistributed taxable earnings was quick ahead to this yr. After which Jack, sort of how does the — do you anticipate the Board to view the dividend coverage to one thing, I do know an intentional final yr, however perhaps a extra conservative dividend coverage close to time period or true-up on the finish of the yr or extra of a run price dividend based mostly on an outlook that may be sustained for 2021?

Jack A. Taylor — Chief Govt Officer, President and Director

Positive, Stephen. So we have been rolled round $25 million of undistributed taxable earnings into this yr. Clearly, we paid out a $0.25 particular dividend. So we now have some extra flexibility vis-a-vis the dividend for this yr. Clearly, our earnings — our distributable earnings in This fall have been robust and canopy the dividend fairly properly. So look, the coverage is to be sure that the dividend is sustainable, secure and it is supported by core profitability of the enterprise. We constantly focus on this with our Board as we attempt to assess the efficiency of the portfolio and capital markets and clearly, in an total surroundings. So I might say we really feel fairly good about our earnings run price. Clearly, we could have some as all people else on this entire trade some credit score occasions right here and there, they’re arduous to foretell, however from a core profitability perspective, we really feel fairly good when it comes to the place we’re. And I feel over time, the dividend ought to intently monitor that after we undergo the interval of uncertainty.

Stephen Legal guidelines — Raymond James — Analyst

Nice. Thanks for the feedback this morning.

Jack A. Taylor — Chief Govt Officer, President and Director

Thanks.

Operator

And the subsequent query comes from Arren Cyganovich with Citi. Please go forward.

Arren Cyganovich — Citigroup Securities — Analyst

Thanks. Simply wanting via your portfolio, you could have a handful of loans which have now been marked to carrying values which can be in extra of a few p.c of the unique principal worth. These are ones, simply I suppose the resort agreeable that you just simply marked down are created reserve for this quarter. How are you developing with the valuations for the carrying values? And does this recommend that the worth of that property now? It is via the principal quantity and is that only a sort of — I think about there’s not a ton of transactions to actually comply with to get a real worth of that property. I am simply attempting to consider the potential threat there and listen to somewhat bit extra concerning the course of that you just received there.

Jack A. Taylor — Chief Govt Officer, President and Director

Positive. Look, the carrying worth is a perform of the varied reductions and costs associated to the property in addition to the reserves. The CECL reserves that we now have throughout the portfolio, we’re required to have reserves sort of throughout the board on all property. In order that’s a part of our total allowance evaluation that we undergo each quarter with the modeling train, then we undergo and evaluate all the outcomes of all of the loans. So primarily, these are the variations between principal and carrying worth.

Arren Cyganovich — Citigroup Securities — Analyst

Yeah. However the ones which can be extra drastically lowered, a few of them are 10%, 12% of the — of a discount. And I suppose it suggests given the preliminary LTVs which can be within the ’60s that you’d be fairly properly protected for probably the most half. I suppose, the massive low cost that you’ve related to these. Is that actually a perform of what you view the collateral worth to be or is there different issues which can be driving that determine reductions related to it?

Jack A. Taylor — Chief Govt Officer, President and Director

It is a perform of the general evaluation on the reserves, which clearly worth and LTV is likely one of the inputs into the general allowances within the mannequin. I feel when you simply step again and take into consideration total how these reserve reserves work and what the final word efficiency of the portfolio perhaps, I feel it is fairly secure to imagine that the reserves are typically concentrated in a subset of loans fairly than evenly throughout the entire portfolio as all alongside after which, the loans have sort of various credit score traits within the completely different property sorts and issues like that. So once more, it is a perform of the evaluation that we do the place clearly worth is likely one of the inputs, nevertheless it’s not all of the enter is. It is clearly money circulate and sponsorship market and property sort and a bunch of different inputs that we use.

Arren Cyganovich — Citigroup Securities — Analyst

Okay. Thanks.

Operator

And the subsequent query is a follow-up from Jade Rahmani with KBW. Please go forward.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

Thanks very a lot. I feel the massive merchandise on everybody’s minds proper now could be rates of interest and I forgot to ask that. So how do you assume that modifications the industrial actual property outlook? It sounds such as you’re seeing an uptick in transaction volumes and also you mentioned choose property sorts, which I assume means industrial and single-family rental, the invoke property sorts and perhaps multi-family as properly on account of charges, however total charges are up fairly meaningfully. And it looks as if there’s the potential for charges rising additional, particularly if the inventory market is signaling a robust economic system. How does that change the best way you are wanting on the outlook for industrial actual property?

Jack A. Taylor — Chief Govt Officer, President and Director

Hello, Jade. That is Jack. So there’s a common notion over market cycles that the — come up on the lengthy finish of rates of interest will drive capitalization charges up after which, the truth is, lots of the statistics do not bear that out. I like to have a look at this and due to this fact values. I do assume that for longer-term, say, 10-year fastened price property, an increase in rates of interest. We’d put stress on some refinancing, nevertheless it is dependent upon when these loans have been made and the way they’re performing. The rise in charges, there’s a perform of the, I might say, large help each financial and financial that has been offered and has been offered to the markets and to the economic system. And we’re a help for industrial actual property via these actions. The — it isn’t like — properly, as an example, it is a help each for the tenant base and for the operators and finally, for the lenders and traders and securities, are backed by these loans. So — and I might say that the rise in charges could also be proportionally, due to the very, very small base, it is received upfront, however we’re nonetheless — we’re not speaking about tremendously excessive rates of interest. And the — if the quick finish goes up, our portfolio, for instance, advantages from that, however I might say that it is actually all of the perform, the liquidity provide, which is a optimistic for industrial actual property throughout, together with as an inflation hedge.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

Thanks for that. Do you assume that pricing within the CLO market has adjusted during the last couple of weeks?

Jack A. Taylor — Chief Govt Officer, President and Director

Sure. Effectively, it firmed up quite a bit. It’s — A) I might describe it in perhaps understated means, it is a vibrant market and there’s a lot of provide within the CLO market, particularly in comparison with say the CMBS market presently. That is for plenty of causes, one being which have the — so I feel I discussed the bridge mortgage, the loans from the bridge market that have been put into CLOs have outperformed and are doing fairly properly. The buildings of the pre-existing CLO issuances are is that up properly with very minimal losses. And once I referred to buildings, there’s OVL [Phonetic] revitalization check and issues like that, however the elementary construction is that the issuer retained, there’s embedded fairness from the debtors. So let’s name it, the common mortgage is at 65% LTV. There’s that fairness plus the retention of the bonds, when the necessity to funding grade by the issuer offering a really robust alignment of curiosity, and this has been acknowledged by the outperformance. The optimistic construction has been acknowledged by the investor neighborhood.

And so, whereas there’s been numerous issuance that has occurred already this yr and we anticipate to proceed, it is being met by very sturdy demand, in addition to folks seek for yield. This was thought-about a really enticing safe performs to get extra yield. It requires some technical experience and that is reward on the a part of the traders. And that is rewarded with it.

With respect to issuers like Granite Level having properly inside — as all-in price, properly inside LIBOR 200 foundation factors with bond spreads on the bonds themselves being within the, say, 115 foundation factors, 120 foundation factors vary is a really optimistic surroundings.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

I am sorry, if I missed it, however in response to Stephen Legal guidelines’ query, what did you say the price of the Goldman facility was?

Jack A. Taylor — Chief Govt Officer, President and Director

It is a LIBOR 360 foundation factors. It is somewhat over 0.5 level in charge, however as Steve Plust identified, by the best way, he was referring to the combination mortgage stability, the bond issuance, if you’ll, as a result of it is like a capital warehouse facility, non-public CLOs the place folks consult with it as 3.49%. And as you identified, we’re in a position to cut back that price, if we select by taking out, we now have the best to take out over $100 million of these loans and put them right into a CLO securitization issuance with out prepay penalty.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

Okay. So the associated fee could be LIBOR’s 10 foundation factors plus 360 foundation factors, so it is 370 foundation factors and amortize the 50 foundation factors of charges over three years or so?

Jack A. Taylor — Chief Govt Officer, President and Director

Proper, 55 foundation factors. Sure, 55 foundation factors.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

55 foundation factors over three years us is eighteen foundation factors plus 370 foundation factors. So the all-in price is one thing like 390 foundation factors?

Jack A. Taylor — Chief Govt Officer, President and Director

Proper.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

Okay. So I am a sheet of mortgage spreads that Cushman & Wakefield properly sends out and once I have a look at floating price, three to five-year mortgages on plain vanilla workplace at — over 65 foundation level, the spreads are someplace in 250 foundation level to 325 foundation level vary earlier than charges. In order that appears fairly near the price of this Goldman’s facility whereby your present mortgage e book has greater spreads than the place we’re presently at.

Steven Plust — Vice President and Chief Working Officer

Hey Jade, it is Steve. Clearly, it relies upon tremendously on what sort of property you are speaking about. What we’re seeing within the bridge area proper now, plainly numerous of us are speaking about coupons versus spreads, however we’re seeing — we’re in all probability seeing multi-family relying on the deal within the low to mid-threes. We’re in all probability seeing workplace. There was numerous workplace product two months in the past within the flooring. A few of that now could be within the threes as properly. However for the stuff that I feel we’re , one thing within the twos and even high-teens would — is somewhat under what we’re seeing proper now.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

And that is coupon earlier than charges?

Steven Plust — Vice President and Chief Working Officer

That is coupon earlier than charges with LIBOR flooring that modify by deal, however let’s simply say 25 foundation level LIBOR flooring, someplace in that space.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

Okay. So do you assume that ROEs within the 10% to 12% gross ROEs are achievable on a levered foundation?

Jack A. Taylor — Chief Govt Officer, President and Director

Yeah. There’s clearly numerous variables when it comes to spreads and flooring and costs and legal responsibility pricing, however I might say if you sort of put all of it collectively, we’re seeing lever returns which can be in all probability at or close to the place they have been pre-pandemic.

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

Okay. Nice. Thanks a lot for taking all of the questions. Actually recognize it.

Jack A. Taylor — Chief Govt Officer, President and Director

Positive. Thanks for becoming a member of.

Operator

Women and gents, this concludes our question-and-answer session. I want to flip the convention again of to Jack Taylor for any closing remarks.

Jack A. Taylor — Chief Govt Officer, President and Director

Thanks, Chad. And thanks all people for becoming a member of us in the present day. We actually recognize your taking the time and spending your hour with us to listen to about our firm. I needed to notably want all people on the market within the Granite Level neighborhood and past a really secure and wholesome time period going ahead. Hopefully, towards — via the ultimate months or so of the pandemic. So good well being and prosperity to you all. And thanks once more. [Operator Closing Remarks]

Length: 59 minutes

Name contributors:

Chris Petta — Investor Relations Officer

Jack A. Taylor — Chief Govt Officer, President and Director

Stephen Alpart — Vice President, Chief Funding Officer and Co-Head of Originations

Marcin Urbaszek — Chief Monetary Officer

Steven Plust — Vice President and Chief Working Officer

Douglas Harter — Credit score Suisse Securities (USA) LLC — Analyst

Jade Rahmani — Keefe, Bruyette & Woods — Analyst

Charlie Arestia — J.P. Morgan — Analyst

Stephen Legal guidelines — Raymond James — Analyst

Arren Cyganovich — Citigroup Securities — Analyst

More GPMT analysis

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