Granite Point Mortgage Trust: Office Distress Continues, Are The Preferreds Safe

Core Viewpoint - Granite Point Mortgage Trust (GPMT) has experienced a significant decline in its book value, primarily due to distressed loans tied to US office real estate, leading to a 50% drop in stock price over the past year [1]. Financial Performance - GPMT reported a fiscal 2024 second-quarter book value of $9.84 per share, down from$11.14 per share in the first quarter, marking an 11.7% decline [1]. - The loan portfolio had an outstanding principal balance of $2.6 billion across 68 investments, with a weighted average yield of 7$9.24 million, a 58.6% decrease year-over-year, missing consensus estimates by $1.07 million [4]. Dividend and Shareholder Impact - GPMT declared a quarterly cash dividend of$0.05 per share, a 67% reduction from the previous payout, resulting in an annualized yield of 7.7% [3]. - The dividend cut is expected to save $0.40 per share in book value, but the company may need to consider suspending dividends entirely to stabilize its financial position [4]. Loan Portfolio and Risk Assessment - The weighted average portfolio risk rating is 3.0, with 28$545.2 million, with 40% of this balance in office collateralized loans [7]. Strategic Actions - The company funded $17.5 million in loans during the second quarter while repaying$103.7 million, ending the quarter with $86 million in unrestricted cash and a leverage ratio of 2.5x [8]. - GPMT is focusing on resolving existing problem loans and improving its credit profile while considering share buybacks due to the current discount to book value [8]. Market Outlook - The company is expected to face downward pressure on yield due to pending Federal Reserve rate cuts, which could impact its near-term value [8]. - Until the book value stabilizes and the loan portfolio risk rating improves, GPMT's common shares are not recommended for purchase [9].