Granite Point Mortgage Trust Inc (GPMT) Q2 2021 Earnings Call Transcript

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Granite Point Mortgage Trust Inc (NYSE:GPMT)
Q2 2021 Earnings Call
Aug 10, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, my name is Cole, and I’ll be your conference facilitator. At this time, I would like to welcome everyone to the Granite Point Mortgage Trust’s Second Quarter 2021 Financial Results Conference Call. [Operator Instructions] And as a reminder, this call is being recorded. [Operator Instructions].

I would now like to turn the conference over to Chris Petta with Investor Relations for Granite. Please go ahead.

Chris Petta — Investor Relations

Thank you, and good morning, everyone. Thank you for joining our call to discuss Granite Point’s second quarter 2021 financial results. With me on the call this morning are Jack Taylor, our President and Chief Executive Officer; Marcin Urbaszek, our Chief Financial Officer; Steve Alpart, our Chief Investment Officer and Co-Head of Originations; Peter Morral, our Chief Development Officer and Co-Head of Originations; and Steven Plust, our Chief Operating Officer.

After my introductory comments, Jack will review our current business activities and provide a brief recap of market conditions; Steve Alpart will discuss our portfolio; and Marcin will highlight key items from our financial results. The press release and financial tables associated with today’s call as well as our Form 10-Q were filed yesterday with the SEC. If you do not have a copy, you may find them on our website or on the SEC’s website at sec.gov.

In our earnings release and slides, which are now posted in the Investor Relations section of our website, we have provided a reconciliation of GAAP to non-GAAP financial measures. We urge you to review this information in conjunction with today’s call. I would also like to mention this call is being webcast and maybe accessed on our website in the same location.

Before I turn the call over to Jack, I would like to remind you that remarks made by management during this conference call and the supporting slides may include forward-looking statements, which are uncertain and outside of the company’s control. Forward-looking statements reflect our views regarding future events and are typically associated with the use of words such as anticipate, expect, estimate and believe or other similar expressions. We caution investors not to rely unduly on forward-looking statements. They imply risks and uncertainties and actual results may differ materially from expectations. We urge you to carefully consider the risks described in our filings with the SEC, including our most recent 10-K and 10-Q reports, which may be obtained on the SEC’s website at sec.gov. We do not undertake any obligation to update or correct any forward-looking statements if later events prove them to be inaccurate.

I will now turn the call over to Jack.

John A. Taylor — President and Chief Executive Officer

Thank you, Chris, and good morning, everyone. We would like to welcome you all to our second quarter 2021 earnings call. We hope everyone continues to stay healthy and safe. Our business delivered another quarter of solid operating results, as we continue to successfully execute on our strategy of originating and managing a well-diversified portfolio of first mortgage loans, generating attractive returns.

Yesterday afternoon, we reported second quarter distributable earnings of $0.29 per share, which again comfortably covered our common stock dividend of $0.25 per share. Our earnings continue to benefit from the in-the-money LIBOR floors on our loans and the strength of our portfolio. In addition, our book value moderately increased to $17.27 per share, partially benefiting from the share repurchases executed during the quarter. We had an active quarter across our business with respect to both assets and liabilities. During the second quarter, we closed seven new loans totaling over $200 million of commitments and currently have an additional $280 million of loans that have either closed or are expected to close in the near term. To date, we have originated loan secured primarily by multi-family properties.

We have also funded well-leased office properties and are pursuing loans secured by industrial warehouse, self-storage, life sciences and others. In addition to our existing pipeline of committed loans, we have been actively sourcing new investment opportunities with the goal of deploying our excess liquidity and growing our portfolio, which should help improve our earnings and dividends over time. We are currently actively reviewing several billion dollars of lending opportunities. The scope of which allows us to be selective and pick the most interesting investments for our portfolio.

The market for lending on transitional commercial real estate assets remains very active with significantly improved transaction volumes supported by robust levels of available liquidity and well functioning capital markets. Investors are increasingly enthusiastic about deploying both equity and debt capital and adding to their exposure to U.S. commercial real estate. Granite Point benefits from this increased market activity on both sides of our balance sheet. The loan repayments we realized in our portfolio generally provide us with additional liquidity for new investments and we are also able to further improve our funding profile by taking advantage of the favorable capital markets conditions.

During the second quarter, the pace of our repayments accelerated resulting in over $420 million in total volume, including $134 million of hotel loan payoffs, which contributed to the decline in our portfolio balance and earnings quarter-over-quarter as repayments occurred in advance of our new originations. We view this level of pay-offs is elevated and would anticipate it to moderate for the rest of the year.

With respect to our borrowings, during the second quarter, we closed our third commercial real estate CLO and $844 million transaction and also extended maturities on some of our financing facilities. Our CLO had attractive cost of funds and leverage, increased our proportion of non-mark-to-market borrowings to about 75%, achieving our targeted levels. We believe the CLO market remain very favorable for well-established and repeat issuer such as Granite Point and is a key component of our balance sheet management strategy. As we originate new loans and grow our portfolio, we intend over time to be an active participant and opportunistically access the commercial real estate CLO market, as we execute on our strategy of maintaining a well-diversified term matched funding profile emphasizing non-mark-to-market and non-recourse financing sources.

We are very pleased with the performance of our business through the first half of the year. We have delivered solid earnings driven by the attractive income generated by our well-balanced and defensively positioned investment portfolio and supported by the benefits from the LIBOR floors embedded in our loans. We have improved our capital structure and we’ll continue to do so to further reduce our funding cost and provide us with more balance sheet flexibility.

Refinancing our existing term loan remains a strategic priority. Given the improving market fundamentals and increased transaction volumes, our healthy level of liquidity and the strength of our origination platform, we are well positioned to take advantage of ample investment opportunities and grow our business while delivering attractive risk-adjusted results to our stockholders over time. So boarded by our highly experienced and talented team, we intend to continue to expand our already strong forward pipeline to support our earnings and dividends, while also further rationalizing the mix of our funding sources. As an internally managed REIT, we believe we have the opportunity to realize meaningful economies of scale benefits embedded in our business as we grow over time.

I would now like to turn the call over to Steve Alpart to discuss our originations, forward pipeline and portfolio in more detail.

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

Thank you, Jack, and thank you all for joining our call this morning. We had a very busy quarter with respect to our overall portfolio activity. We closed seven new loans with total commitments of over $200 million and initial fundings of over $160 million. We also funded an additional $30 million on existing commitments or total portfolio fundings of over $190 million. Six of these loans comprising over 70% of our Q2 originations are secured by multifamily properties and one loan is secured by a well-leased office building in the Southeast. The new loans carry attractive return and credit profiles with a weighted average yield of LIBOR plus 410 and a weighted average stabilized LTV of under 68%, reflective of the high proportion of multi-family loans.

During the second quarter, we realized $423 million of repayments, including eight full loan payoffs and several partial paydowns. Repayments were diversified across various property types and included two of our larger hotel loans with a combined principal balance of about $134 million, which reduced our portfolio of hotel allocation to under 15%. We view this volume of repayments as elevated and would anticipate it to moderate over the rest of the year. Our initial estimate for full year repayments was between $500 million and $1 billion, which we still view as reasonable, but the exact timing of them is hard to predict. We believe that a healthy repayment activity as a result of continued improvement in market conditions and is also attributable to the overall credit quality of our portfolio.

We ended the second quarter with a portfolio outstanding principal balance of about $3.6 billion across 99 loans with an additional $440 million in future funding commitments, which account for only about 11% of our total commitments and is reflective of the generally lighter transitional nature of our assets. Decline of our portfolio balance in Q1 is mainly related to the elevated volume repayments [Phonetic] and the timing of closing new origination. Our assets continue to generate attractive returns and exhibit healthy overall credit characteristics with the weighted average unlevered yield of about 5.3% realized in Q2 and a weighted average stabilized LTV of under 64%. Our portfolio has generally performed well and in-line with our overall expectations given the market condition.

We’ve had strong collections of contractual interest due on our loans through the July payment date. Our overall risk ratings were relatively stable in Q2. At June 30th, we had three loans that were risk-rated 5 and were placed on non-accrual status during the quarter as a result of being particularly impacted by the pandemic. While select credit concerns remain with respect to certain loans, we have a positive outlook for our portfolio and real estate fundamentals in general. As an example, we are seeing positive trends in our hotel portfolio.

As real estate fundamentals continue to improve, we are working with our borrowers and have seen a shift in the nature of the modification request we received from interest deferrals toward extensions, which is a reflection that many business plans have been delayed. During Q2, we modified eight loans with an aggregate principal balance of about $409 million. Three of these loans involving interest deferrals and most of the other simply allowing borrowers more time to implement their business plan and exchange for additional financial commitments to their assets. We also deferred and capitalized approximately $4 million of interest income, which reflects some of the Q2 modification as well as others that are currently effective from prior quarters. This strategy of granting borrowers more time has already resulted in repayments of loans that were previously modified and that have since repaid in full. We continue to see our high quality borrowers acting responsibly and making ongoing financial commitments to their properties.

While we are actively managing our existing assets, we are committed to growing our portfolio and improving our earnings and dividends over time. We have generated a strong forward pipeline of attractive investments with over $280 million of total commitments and over $265 million of initial fundings. So far in the third quarter, we have closed three loans and funded $125 million of principal, also another $12 million on prior commitments. These loans and those in our pipeline are secured by properties with favorable fundamentals including multi-family, office and self-storage assets with attractive risk-adjusted return profiles. Despite the heavy competition among lenders, we remain disciplined and selective and continue to find ample attractive investment for our portfolio from many repeat borrowers with compelling returns as we review a large set of opportunities currently available in the market. Assuming stable market conditions and depending on the volume of loan repayments, we anticipate growing our portfolio as we redeploy our excess capital over the rest of the year.

I will now turn the call over to Marcin for a more detailed review of our financial results.

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

Thank you, Steve. Good morning, everyone, and thank you for joining us today. Yesterday afternoon, we reported our results for the second quarter of 2021 with GAAP net income of $14.2 million or $0.26 per basic share as compared to $28 million of $0.51 per basic share in the first quarter. Distributable earnings for Q2 were $15.7 million or $0.29 per basic share versus $20.7 million or $0.38 per share in Q1.

There were a few main drivers that affected our second quarter results compared to the prior period. First, as we disclosed previously along with our dividend announcement in June, we realized an elevated volume of loan repayments of about $423 million in Q2, which combined with our new originations resulted in a $225 million net decline in our portfolio from Q1.

Second, we recorded a $2.1 million reversal of interest related to three loans placed on non-accrual status. Both of these factors drove most of the decline in our net interest income of about $5 million or $0.09 per basic share. Finally, our total allowance for credit losses was relatively stable quarter-over-quarter as we did not realize a meaningful benefit from provision for credit losses in Q2 as compared to the $9 million or $0.17 per basic share reserve release we had in Q1.

Our total operating expenses in Q2 of a bit under $9 million were largely in line with the first quarter. Our distributable earnings continue to meaningfully cover our common dividend, reflecting a strong run rate earnings power of our portfolio despite elevated volume of loan repayments. The attractive income generated by our portfolio continues to benefit from the LIBOR floors embedded in our loans with a weighted average rate of 155 basis points. Over time, as our portfolio mix continues to shift toward new originations with lower LIBOR floors, we would anticipate this earnings benefit to moderate. However, if and when short-term rates increase, our results should benefit as our portfolio likely becomes more rate sensitive.

Partially driven by the share repurchases, our Q2 book value increased to $17.27 per share from $17.22 per share in Q1. At June 30, book value includes an allowance for credit losses of $62.9 million or $1.15 per share. However, it does not include the potential dilutive effect of the approximately $4.6 million warrants that remain effectively outstanding, which were issued as part of the term loan financing last year. At a recent stock price of around $14 per share, the dilutive effect on our book value would be approximately 3.5% assuming a cash settlement option and over 4% in the case of net share settlement option.

As I mentioned earlier, our total CECL reserve was largely unchanged from the prior quarter at about $63 million, representing about 154 basis points of our total portfolio commitments as of June 30. We had a few offsetting factors impacting our allowance in Q2. The reserve releases associated with repayments and further improving macroeconomic forecasts were mostly offset by an increase in the reserve on one office loan that was newly rated 5 as well as an establishment of an allowance for the newly originated loans. The other two loans that were also individually assessed during the quarter had been largely reserved for previously.

Turning to liquidity and leverage. We ended the quarter with about $237 million in cash on hand. As of August 6th, we had approximately $242 million in cash. In addition to the cash on the balance sheet, we also have our option to draw another $75 million in term loan proceeds through the end of September. Our total debt-to-equity ratio at June 30 was 2.8 times, down from 3 times in the prior quarter. Our recourse leverage at June 30 declined to 1.1 times from 1.7 times in Q1, mainly driven by the closing of our third CRE CLO in May. We would anticipate our total leverage to increase as we continue to originate new loans and deploy the excess liquidity. Given current market conditions, we would anticipate our total leverage to be in the range of 3 times to 3.5 times over time depending on the pace of our new loan originations and volume repayments.

Thank you again for joining us today and I will now ask the operator to open the call to questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question today will come from Doug Harter with Credit Suisse. Please go ahead.

Douglas Harter — Credit Suisse — Analyst

Thanks. Hoping you could talk a little bit more about the three loans, one on to non-accrual today, just give us the details of how reserve they are and why you’re comfortable with those reserve levels?

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

Hey, Doug, good morning. Its Steve. Thanks for joining the call this morning. So we’ve talked about most of these loans in prior quarters is not a lot new this quarter, very comfortable with the risk rankings. Credit profile of our portfolio was generally stable in Q2. We’re closely asset managing our portfolio. We’re evaluating loans this quarter. We feel very good about the reserves and as we have new information, we’ll share that.

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

And I guess. This is Marcin. If you look at our Q, we’ll provide a little bit more detail on specifically kind of how much reserves are on each of these assets.

Douglas Harter — Credit Suisse — Analyst

I guess, what specifically changed that led you to take the interest reversal this quarter and why you hadn’t done that in the past?

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

Sure, it’s Steve again. So on on Minneapolis Hotel, which we talked about a little bit last quarter. So we’ve maintained the 5 ranking this quarter. There is not a lot new this quarter. We’re working toward a resolution. As I said, we feel like we’re adequately reserved. We just felt like given the overall status, it make sense to put that one on non-accrual status. We moved the Southern California retail loan that we discussed previously that had been ranked a 4 in Q1, we moved it to 5 in Q2, and that was mainly due to the ongoing uncertainty around retail in general and also because it had at the time an upcoming July maturity date. And then we moved a loan secured by an office building in DC to 5 and that one was largely due to just ongoing softness in the DC leasing market some borrower fatigue about putting more equity into the property and that was the catalyst for moving that on on to non-accrual.

Douglas Harter — Credit Suisse — Analyst

Great, thanks. And then could you talk about deploying the liquidity, how you’re weighing deploying that into loans versus repaying the term loan that you took out, I guess a year or so ago?

John A. Taylor — President and Chief Executive Officer

Doug, I had my phone on mute. We are — we’re looking to deploy that liquidity. We had our, what I would say a downturn or a trough in our portfolio balance because of the elevated level of repayments that were in advance of the originations of the loans to replace them. I’ll let Marcin speaks to the term loan here in a second, but I’ll say our expectation is to — we have ample liquidity. Our expectation is to deploy that through the end of the year, expecting a year-end balance I would say somewhere about 5%, maybe plus that, possibly lower over the current level of balance by year end.

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

And Doug, with respect to the term loan as we mentioned earlier, it’s a pretty attractive piece in our capital structure though it is it is expensive, so our strategic priority is to refinance this term loan at some point in the future. As you can imagine, it will largely depend on capital markets conditions. We’re looking at a variety of different products to accomplish that. But we can’t really comment on anything with any certain high degree of certainty as of right now since it is capital market dependent.

Douglas Harter — Credit Suisse — Analyst

Great, thank you.

Operator

And our next question will come from Steve DeLaney with JMP Securities. Please go ahead.

Steve DeLaney — JMP Securities — Analyst

Good morning, everyone. Thanks for taking my question. Marcin, you were discussing some items that you indicated had a $0.09 per share impact on second quarter earnings and I believe you were comparing that relative to first quarter. I think $2.1 million was the reversal of interest that you described on, I think the three non-accrual loans. What would the other roughly $3 million of impact have come from to get to a $0.09 or about a $5 million per total dollar amount.

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

Good morning, Steve. Thank you for joining us.

Steve DeLaney — JMP Securities — Analyst

Sure.

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

Yeah, I would say the rest of it is largely related to the repayments. We had really elevated level of repayments in the quarter. Some of those repayments are hotel loans, which obviously is a good sign from a credit perspective, but they tend to carry higher yields. So I would say most of the — most of the rest of the decline is related to repayments and it is just time to get the repayments and closing of the loans.

Steve DeLaney — JMP Securities — Analyst

So smaller average portfolio size, obviously.

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

Correct.

Steve DeLaney — JMP Securities — Analyst

Okay. And just to be clear, the Page 11 in the deck, these 5 loans — these are all 5 rated at this time, right? And I think there were two new 5 rated loans in the quarter. Just trying to make sure I’ve got — I’m looking at the entirety of the 5 rated loans and also the number that were new in the quarter?

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

So we have three 5 rated loans, that’s the Pasadena, California retail, the Minneapolis hotel and another Washington DC office. The other two are not 5 rated, but they are loans that we’ve discussed in prior quarters as on “watchlist” that we’re monitoring closely.

Steve DeLaney — JMP Securities — Analyst

I see. So this is not — this is your watch list, but it’s not intended to suggest that all 5. So three of these are 5 rated, two are not. Okay, that’s helpful. And then Page 3 of the deck, I’m just trying to get the nuance right here. You are making the statement at the top that through July of 2020 a 100% of borrowers are making their contractual payments in accordance with agreements and there is a footnote there 3 and it’s just including loan mods and 4 non-accrual loans. So with respect to the non-accrual loans when you say a 100% of borrowers are making their contractual payments, are they making interest payments even though they are non-accrual and you’re just recognizing the income as it comes in as opposed to accruing it?

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

No, they’re not. So we are excluding that from our calculation.

Steve DeLaney — JMP Securities — Analyst

Okay. So when you say 100% of borrowers making payments, that’s excluding the 4 non-accrual loans, because we are assuming that they are not pay. Okay, correct. So other than — So other than those four loans, you’ve got everybody making their payments. Is that correct?

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

Adjusted for mods, which some of the modifications may involve some partial deferral of interest, not waivers but deferrals, which to Steve’s point earlier we’ve seen a significant decline in those requests.

Steve DeLaney — JMP Securities — Analyst

When you mentioned CECL reserve, I thought I heard you mention a figure of $63 million. I’m looking at my model and I’m seeing $39 million, it was down. You had released $9 million in the first quarter. Is it $39 million? Or I don’t know where the $63 million came from?

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

Now, were $63.1 million in Q1 and its $62.9 million in Q2 on a total reserve. So was largely unchanged, but we obviously had some movement between kind of the general population in some of the loans that we individually assessed over the quarter.

Steve DeLaney — JMP Securities — Analyst

Right, got it, OK. And within that CECL reserve on the five loans on Page 11, can you tell me how much of the CECL reserve do you have specific reserves on any of the loan shown on Page 11?

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

If you look at our…

Steve DeLaney — JMP Securities — Analyst

Go ahead, I’m sorry.

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

Now if you look at our 10-Q and when we talk about our portfolio, we’ll provide a bit more detail on the three 5 rated loans. So, they are about — they’re about $32 million to $35 million for those specifically assessed 5 rated loans and the pull. So more than half of our reserves as we know is related to those thee 5 loans.

Steve DeLaney — JMP Securities — Analyst

Excellent, thank you so much for the color. That’s very helpful.

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

Thank you.

Operator

And our next question will come from Stephen Laws with Raymond James. Please go ahead.

Stephen Laws — Raymond James — Analyst

Yeah, Hi, good morning. Appreciate the — to ask questions today. Jack, to follow-up on Doug’s question earlier about your excess liquidity as you think about deploying in new loans, paying down some more expensive capital or refinancing that. Where does stock repurchase fit in? I mean, you bought back a little bit of stock I believe during the quarter. So can you talk about your options there?

John A. Taylor — President and Chief Executive Officer

Sure. Good morning, Stephen. Thanks for joining us and I’m happy to address that. First, to the usual caveat, its our general policy not to comment on any potential buybacks or their timing. But having said that, we always have been focused on generating the best risk-adjusted returns and what’s best for the business, which has a lot of different factors that play into it. And one of the assessments of the best use of capital, of course is, the discount to book valuation that we would take that into consideration in assessing the best use of capital against origination opportunities, rationalization of the liabilities, etc. And we do have authorization for more share buybacks that are available to us as we make the succession.

Stephen Laws — Raymond James — Analyst

Great, thanks for the comments on that, Jack. Marcin, looking at Page 12 on the financing. Can you talk to the [Technical Issues] opportunities to call that either, — looks like cheaper financing, either through the repo facilities or putting into newer CLO. Can you talk about opportunities you see other than the term loan to kind of reduce financing costs going forward?

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

Sure. Hi, Stephen. Thanks for the question. Look, when we — when we assess our liabilities and fundings, we kind of look at everything all together. So you make an interesting point on [Indecipherable] it is a function of what type of assets are financed with different pools, what’s available in the market. But I can assure you that we are looking at our liabilities and funding and reassessing the best way to rationalize that and bring down our cost of funds, which we’ve been definitely focused on. So we can probably become a little bit more efficient on the asset finance side of our business that we intend to do so.

Stephen Laws — Raymond James — Analyst

Thanks for the comments.

Operator

And our next question will come from Jade Rahmani with KBW. Please go ahead.

Jade Rahmani — KBW — Analyst

Thank you very much. Looking at the expense base of $9 million on an annualized basis, its 3.8% of common — the typical fee structure for even externally managed REITs is 1.5% base fee and probably about 20% above or 20% of excess returns above an 8% hurdle, 7% hurdle. So the expense ratio is 2.5% for for GPMT to operate at that level of proficiency your equity base needs to be 40% higher. So my question is; number one, with the existing capital base, what kind of returns on equity do you believe are achievable? And what other options do you believe there are to increase the operating leverage at the company so that that expense base could be rationalized?

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

Good morning, Jade. It’s Marcin. Thank you for joining us and for your question. I think you’re missing a couple of other pieces in the expenses across the board as additional G&A that we all incur as public company companies — as public company costs and also amortization of non-cash equity compensation. The ratio for us that you are you are referring includes all of that. So it’s not just compensation costs, it’s the public company costs but also cost to $2 million of LTIP amortization, which all of our peers also have. But look, as an internally managed company, we’ll obviously have pretty significant economies of scale available to us as we grow the company, which we intend to do. And I think as we deploy our excess liquidity, rationalize the liabilities, we fully intend to grow the equity base of this company in the future and realize those economies of scale.

Jade Rahmani — KBW — Analyst

And based on the current equity base you view as to what the levered ROEs over, say a multi-year period, rolling off LIBOR floors, but also rationalizing some of the high cost liabilities. Do you have a view as to what range we should be thinking about as to achievable ROEs within the existing equity base because right now book value of 17.27 to common stock price is 12.47. So I’ve seen a lot of mortgage REITs get into this situation and my peers have as well, where these companies trade below book value and it becomes somewhat difficult to get out of that and grow the common equity base, there could be other tools at your disposal as well. So just curious what the outlook for levered returns within existing capital are?

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

Sure. Look, I think the outlook is still high single digits. We are a little bit inefficient on the balance sheet in terms of liquidity and our liabilities. Our portfolio on a run rate basis continues to generate low-double digit growth returns. We continue to make loans and then low double digit gross returns levered. So I think we have enough of our capital base to grow our earnings once we deploy our liquidity and do some more work on the liability structure to get to those high single-digit net ROEs, which are kind of part for, for the peer group generally. I just think we just have a little bit more work to do on the balance sheet.

Jade Rahmani — KBW — Analyst

Okay. I guess a couple of other items. One is clarification. The $0.04 of other to get to the $0.29 of distributable EPS, what does that relate to?

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

You mean the difference between GAAP and distributable?

Jade Rahmani — KBW — Analyst

Yes, I think you gave a walk to get to the $0.29.

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

Its essentially a non-cash equity comp which is about 3 and there was a slight benefit from provisional 0.5%. So that’s the difference.

Jade Rahmani — KBW — Analyst

Got it, OK.

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

It is there on Page 6 in the presentation.

Jade Rahmani — KBW — Analyst

Great. And actually misspoke. The $0.04 of other to get to the $17.27 book value. Do you happen to know what that’s related to?

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

Most of that is related to the benefit of the share repurchases.

Jade Rahmani — KBW — Analyst

Thanks. Great. And then a question for Jack and Stephen would be. One company I spoke with said that the majority of the increase in production and that a brokerage firm was related to debt funds and I was wondering if you believe that the surge in repayments that we’re seeing across primarily reflects loan take-outs by other debt funds? Or what do you believe the refinancing source of capital is that’s driving this elevated level of activity?

John A. Taylor — President and Chief Executive Officer

I’ll address that and then Steve, if you’d like to follow on. We think it’s across the board. There was a huge surge of, I’ll call it increased and renewed interest in the transition and debts specifically, but also the debt fund space generally and a lot of money came into the space, also in the public REIT sector there has been an acceleration of financings. So we’re seeing, I would say primarily take-outs from the private side, but it’s been across the board.

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

Jade, I would add that.

Jade Rahmani — KBW — Analyst

Yeah, go ahead.

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

Well, I was just going to say, so not primarily debt funds. When you guys are losing alone and you had a huge amount of repayments, which speaks well to the credit quality, but those loans are being taken out by traditional lenders or debt funds. I would say for our portfolio notwithstanding the three 5 ranked loans, the portfolio credit has been strong and what we’re seeing is that might progress in the business plans. The agency, the GSEs are wide open. So you’re seeing multi-family loans go into kind of permanent loan take-outs. You’re seeing hotels that were transitional that have progressed notwithstanding the pandemic. So for our portfolio, a lot of it has just the natural progression of business plans and being taken out by various types of permanent lenders or securitizations or GSAs, that’s a lot of it.

Jade Rahmani — KBW — Analyst

Okay. Thanks for taking the questions. Appreciate it.

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

Sure. Thanks, Jade.

Operator

And this will conclude our question-and-answer session. I’d like to turn the conference back over to Jack Taylor for any closing remarks.

John A. Taylor — President and Chief Executive Officer

Well, thank you everybody for joining us today. We really appreciate your questions and your time and attention. We really are excited about continuing our strong operating results and growing our business and I’d like to personally and for the Group wish you all a safe and healthy quarter ahead. Thank you.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Chris Petta — Investor Relations

John A. Taylor — President and Chief Executive Officer

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

Marcin Urbaszek — Vice President, Chief Financial Officer, Treasurer and Head of Investor Relations

Douglas Harter — Credit Suisse — Analyst

Steve DeLaney — JMP Securities — Analyst

Stephen Laws — Raymond James — Analyst

Jade Rahmani — KBW — Analyst

More GPMT analysis

All earnings call transcripts