Granite Point Mortgage Trust (NYSE: NYSE:GPMT) discussed their second quarter 2024 financial results, highlighting a net loss primarily due to credit loss provisions. Despite macroeconomic uncertainty affecting the commercial real estate market, the company remains optimistic, with expectations of loan resolutions and repayments increasing in the latter half of 2024.
The CEO noted recent consensus on potential interest rate reductions by the Federal Reserve, which has improved market confidence. Granite Point has resolved several non-accrual loans and anticipates further resolutions soon, with a well-diversified loan portfolio of $2.7 billion in commitments and a $2.6 billion outstanding principal balance.
Key Takeaways
- Granite Point Mortgage Trust reported a GAAP net loss of $66.7 million, or $1.31 per basic share, in Q2 2024.
- The company has increased its CECL reserves due to ongoing pressure on property values.
- Loan repayments and resolutions are expected to be higher in the second half of 2024.
- The loan portfolio is well-diversified across regions and property types.
- The company terminated its Goldman Sachs (NYSE:GS) funding facility, reflecting limited use in the near term.
Company Outlook
- The loan portfolio balance is expected to trend lower by the end of the year.
- Granite Point anticipates improving run rate profitability as non-earning assets are resolved.
- The company expects over $100 million in write-offs in the coming quarters, which should reduce the overall CECL reserve balance.
Bearish Highlights
- The company's operating results continue to be pressured by non-accrual loans, which accounted for over 20% of the portfolio as of the end of the quarter.
- Total leverage increased to 2.5 times in Q2.
Bullish Highlights
- Improved liquidity and increased transaction activity in the real estate market.
- Consensus on potential Federal Reserve interest rate reductions has led to improved market confidence.
- Visibility on resolving several non-accrual loans in the near term.
Misses
- The second-quarter GAAP net loss was significant due to a $60.8 million provision for credit losses.
Q&A Highlights
- Company representatives discussed transparency in property pricing and expressed confidence in resolving loans at or near market value.
- There is comfort with the current risk ratings of the loan portfolio.
- Financing for non-accrual loans comes from various sources, and the company intends to finance REO assets to increase liquidity.
- The decision to provide staple financing depends on the specific asset, with office assets being more likely candidates.
- Realized losses are already reflected in the book value, and the CECL reserve balance is expected to trend downward.
Granite Point Mortgage Trust ended the quarter with about $86 million of unrestricted cash. The company's representatives, Marcin Urbaszek and Jack Taylor, expressed confidence in the company's progress and the health of their loan portfolio, despite the challenges faced in the current economic climate. The earnings call concluded with a note of gratitude for participant support and an optimistic outlook on the company's future.
InvestingPro Insights
Granite Point Mortgage Trust (NYSE: GPMT) has navigated a challenging quarter, but there are several key indicators and actions taken by management that warrant attention. According to InvestingPro Tips, management at GPMT has been actively buying back shares, signaling confidence in the intrinsic value of the company. Furthermore, analysts are expecting sales growth in the current year, which could indicate a potential turnaround from the recent financial results.
InvestingPro Data for GPMT reveals a market capitalization of $130.51M, which reflects the current valuation of the company in the market. Despite the reported net loss, the company is trading at a low Price / Book multiple of 0.18, suggesting that the stock may be undervalued when considering the company's assets. This is further bolstered by the fact that the stock is trading near its 52-week low, presenting a potentially attractive entry point for investors.
The dividend yield stands at a significant 7.78%, which could be appealing for income-focused investors, especially in a market where steady income streams are highly valued. Such a substantial dividend yield, coupled with the company's liquid assets exceeding short-term obligations, suggests a level of financial stability in the face of current losses.
InvestingPro also provides additional insights with numerous other tips listed on their platform, which can provide investors with a comprehensive analysis of GPMT's financial health and future outlook. For instance, the platform includes tips on the stock's recent price performance over various time frames, profitability expectations, and liquidity measures.
For those interested in a deeper dive into Granite Point Mortgage Trust's financials and future prospects, InvestingPro offers a detailed set of additional tips and metrics, which can be accessed at https://www.investing.com/pro/GPMT.
Full transcript - Granite Point Mortgage Trust Inc (GPMT) Q2 2024:
Operator: Good morning. My name is Darrel and I will be your conference facilitator. At this time, I would like to welcome everyone to the Granite Point Mortgage Trust Second Quarter 2024 Financial Results Conference Call. [Operator Instructions]. Please note, today’s call is being recorded. I would now like to turn the call over to Chris Petta with Investor Relations for Granite Point.
Chris Petta: Thank you, and good morning, everyone. Thank you for joining our call to discuss Granite Point’s second quarter 2024 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 Steve Plust, our Chief Operating Officer. After my introductory comments, Jack will provide a brief recap of market conditions and review our current business activities. Steve Alpart will discuss our portfolio, and Marcin will highlight key items from our financial results and capitalization. The press release, financial tables, and earnings supplemental associated with today’s call were filed yesterday with the SEC and are available in the Investor Relations section of our website along with our Form 10-Q. I would like to remind you that remarks made by management during this call and the supporting slides may include forward-looking statements, which are uncertain and outside the company’s control. Forward-looking statements reflect our views regarding future events and are subject to uncertainties that could cause actual results to differ materially from expectations. Please see our filings with the SEC for a discussion of some of our risks that could affect results. We do not undertake any obligation to update any forward-looking statements. We will also refer to certain non-GAAP measures on this call. This information is not intended to be considered in isolation or as a substitute to the financial information presented in accordance with GAAP. A reconciliation of these non-GAAP financial measures to most comparable GAAP measures can be found in our earnings release and slides, which are available on our website. I will now turn the call over to Jack.
Jack Taylor: Thank you, Chris, and good morning, everyone. We would like to welcome you and thank you for joining us for Granite Point’s second quarter 2024 earnings call. The first half of 2024 has been characterized by macroeconomic uncertainty, including volatility and uncertainty about the path of interest rates, which in turn has continued to impact transaction activity in the commercial real estate market. More recently, however, consensus has been building about the potential for the Fed to begin reducing short term rates in the coming months, which was bolstered by the Fed meeting last week and solidified even further by the weak employment report in the market reaction. This shift in rate expectations over the last few months has led to improving confidence in the real estate market and a market pickup in transaction activity though remains well below historical levels. Securitization funding markets for stabilized properties have seen increased activity this year, while liquidity for transitional assets is slowly returning. As transaction flows continue to improve, we're seeing some more market transparency around property valuations. We believe that the move away from the sharply negative sentiment in the market that occurred in March April, following the substantial rise in interest rates at the end of first quarter, will continue to improve the overall level of real estate transaction activity, while property valuations continue their bottoming process. These trends are beginning to play out in our portfolio with recent resolutions of assets and more on the horizon in the coming months quarters, as well as a step up in anticipated loan repayments. Our proactive approach to asset management has resulted in meaningful progress and that we resolved 4 non-accrual loans over the last couple of months with an aggregate principal balance of over $135 million each involving a different strategy in order to drive the best possible outcome for the company. We are actively pursuing resolutions of the remaining non-accrual loans, which are in various stages of their respective processes. We have visibility on approximately $200 million to $300 million of more loan resolutions, which we believe should resolve by the end of 2024. The exact timings and ultimate outcomes remain difficult to predict, given the nature of such transactions and market uncertainty. However, we are encouraged by the progress we continue to make on these assets given their pressure on our run rate profitability. Our approach to non-accrual resolutions emphasizes a balance between timing, potential earnings and book value impacts, liquidity needs and while we work to maximize economic outcomes and best position the company for long term success. Improved visibility regarding the future path of interest rates is likely to be the main factor affecting activity and the performance of the commercial real estate floating rate loan market in the near to medium term. A higher level of real estate investor confidence around the cost of capital and price discovery on property values should continue to drive deployment of capital into this market, including the large amount of dry powder that is still on the sidelines, improving overall liquidity. As we progress towards additional non-accrual loan resolutions over the next quarters, we have increased our CECL reserves to reflect the ongoing pressure on property values. We have been proactive in identifying potential credit issues and building loan loss reserves ahead of the potential charge offs as market trends continue to evolve with more price discovery and as visibility improves based on the resolution progress of individual assets. We are encouraged by the meaningfully slower pace of credit migration within the portfolio in the second quarter, resulting in stable risk ratings quarter-over-quarter. We believe we are getting closer to the end of this period of extreme market stresses and further potential credit issues within the sector and in our portfolio. Nonetheless, while the market tone has been improving of late and transaction activity picking up, given how volatile and unpredictable this cycle has been, the risk remains for select additional credit migration and incremental credit loss provisions. However, given our recent experience and our outlook on non-accrual loan resolutions, the level of our total CECL reserves should decline in the coming quarters. As we see market stabilizing and capital slowly returning to the floating rate transitional space, we remain highly focused on our asset and liquidity management activities while moving through this credit cycle. Repositioning our portfolio over time will position us to return to our core lending and regrow the portfolio, while improving run rate profitability. At the same time, we have maintained our flexible capital allocation strategy focused on relative value and generating attractive total shareholder returns over the long term. As such in June, our Board of Directors decided to reduce our quarterly common dividend to $0.05 per share to protect investors' capital considering the challenging credit environment and the near term pressure on our earnings. Because the company's public market valuation presents a compelling relative value, during the second quarter, we repurchased about 1.5 million of our common shares at a deep discount, which benefited our book value by about $0.05 per share. We currently have about 3.6 million common shares remaining under the current share repurchase authorization and we intend to remain opportunistic with respect to any potential future buyback activity taking into considerations market valuation, liquidity, leverage and portfolio performance among other factors. We believe that accretive share repurchases during times of deeply discounted market valuation are a prudent way to generate attractive total economic returns over time. We firmly believe that during challenging periods, emphasizing balance sheet stability and protecting our investors' capital is the prudent and effective strategy to drive long term shareholder returns, while continuing to reposition the business for future growth opportunities. As we look out into the next few quarters, expected interest rate reductions are likely to contribute to the ultimate recovery of the commercial real estate market. We will continue to proactively asset manage our portfolio and emphasize our liquidity, while driving further loan repayments and non-accrual resolutions, which will significantly contribute to improving our run rate profitability and position us to take advantage of attractive investment opportunities in the future. I would now like to turn the call over to Steve Alpart to discuss our portfolio activities in more detail.
Steve Alpart: Thank you, Jack, and thank you all for joining our call this morning. Since our last call, we've seen some increased transaction activity and improved liquidity and are beginning to see capital slowly returning to transitional assets. Improved market sentiment has contributed to better visibility on certain loan repayments and progress on non-accrual resolutions. During the second quarter, we realized about $56 million of net repayments and paydowns, while resolving two non-accrual loans totaling about $47 million in UPB. Since quarter end, we've realized an additional $143 million of repayments, including a $54 million office loan from a fixed rate CMBS refinancing and I've resolved two additional non-accrual loans with an aggregate UPB of about $88 million. We've used a number of different strategies to resolve assets, while balancing multiple objectives to achieve the best economic outcomes. The $12 million loan secured by the multifamily property located in Milwaukee was repaid during the second quarter a small loss and around our carrying value. We worked collaboratively with the borrower over several quarters to effectuate a successful sale of the property without having to provide seller financing to the buyer. Also during the second quarter, we acquired title to an office property located in suburban Boston, which had previously secured $36 million senior loan. The asset was transferred to REO at the loans carrying value and the property is generating positive cash flow. We believe there is embedded value in the property with attractive optionality for alternative uses for the parts of the building and development opportunity related to excess land. Since quarter end, we have resolved two additional loans totaling $88 million. The first was the $37 million non-accrual loan secured by a mixed use office and retail property located in Downtown Los Angeles. This transaction also involved our coordination with the borrower to sell the collateral property for cash without providing acquisition financing. The loan was unlevered and resulted in a positive liquidity event for the company. Also in July, we restructured the $51 million senior loan collateralized by a mixed use multifamily office and event space building located in Pittsburgh. The property is well located with many attractive attributes. However, the performance of the office and multifamily components have been impacted by weakness in the technology sector, which has a large presence in the local market. The modification included $32 million mortgage loan and a $19 million mezzanine loan with the sponsor committing additional capital to further support and improve the collateral property. We're very pleased with the progress we've been making to resolve our credit impacted loans. As Jack stated earlier, we have visibility on additional resolutions in the near term with seven of the eight remaining risk rated five loans in various stages of their individual sale processes, though the exact timing is hard to predict. The mixed use office and retail property securing our $94 million loan in New York is likely to be under a sales contract soon with an anticipated closing during the fourth quarter. The mixed use retail and office property collateralizing the $82 million loan in Baton Rouge is in a sales process. And though the ultimate timing remains hard to predict, we hope to reach a potential resolution in the coming months. Similarly, coordinated sales processes are ongoing for the $26 million loan secured by the office property in Boston, the $29 million loan securing the Minneapolis Hotel and the $34 million, loan securing the multifamily property in Chicago, which we anticipate all could conclude by the end of the year. During the second quarter, we experienced relatively limited credit migration within the loan portfolio with $120 million loan collateralized by an office property in Denver moved from a risk rating of four to a rating of five. The property has been negatively impacted by local market office leasing dynamics and the sponsor is in the initial stages of marketing the property for sale. In addition, we also downgraded two other loans, one office and one hotel with an aggregate UPB of about $82 million to a risk rating of four, as the collateral properties have been impacted by varying degrees by leasing challenges and limited market liquidity. The portfolio the loan portfolio risk ratings remained stable quarter-over-quarter. We're encouraged by the progress we've made so far addressing the non-accrual loans and are pleased to see that most of our high-quality institutional sponsors continue to support their properties and are progressing on their business plans and what we expect to be a slowly improving market. We ended the second quarter with total loan portfolio commitments of $2.7 billion and an outstanding principal balance of about $2.6 billion with about $118 million of future fundings, which account for only about 4% of total commitments. Our loan portfolio remains well diversified across regions and property types and includes 68 loan investments with an average size of about $38 million and a weighted average LTV stabilized LTV at origination of 63.7%. Our realized loan portfolio yield for the second quarter was about 7%, net of the impact of the non-accrual loans, which we estimate to be approximately 229 basis points for the three months ended June 30th. During the quarter, we funded about $17 million of existing loan commitments and upsizes and realized about $104 million of UPB loan repayments, pay downs, amortization and resolutions. So far in the third quarter, we have funded about $3 million of existing loan commitments and realized about $143 million of loan repayments, pay downs and loan resolutions. Given current market conditions, we expect the volume of loan repayments and resolutions in the second half of 2024 to be higher than what we realized during the first six months of the year. We expect our loan portfolio balance to trend lower by the end of the year, as we maintain our conservative stance and continue emphasizing carrying higher levels of liquidity and working diligently to resolve our non-accrual loans. I will now turn the call over to Marcin for a more detailed review of our financial results and capitalization.
Marcin Urbaszek: Thank you, Steve. Good morning, everyone, and thank you for joining us today. Yesterday afternoon, we reported a second quarter GAAP net loss of $66.7 million or $1.31 per basic share, which includes a provision for credit losses of $60.8 million or $1.19 per basic share, mainly related to certain risk rated five loans. Distributable loss for the quarter was $9.1 million or $0.18 per basic share reflecting loan write offs of $6.6 million or $0.13 per basic share and a decline in net interest income mainly driven by non-accrual loans. Our book value at June 30 was $9.84 per common share, a decline of about $1.30 per share from Q1, which was primarily due to loan loss provision mentioned earlier partially offset by the accretive share buybacks we opportunistically executed during the quarter which we estimate benefited book value by about $0.05 per common share. The two small write offs this quarter were related to the resolution of our multifamily loan in Milwaukee and a modification of our loan secured by a design building in New York, which created a small mezzanine note we deemed uncollectible. For more details on this modification, please refer to our Form 10-Q. Given our outlook on the potential near-term non-accrual resolutions Jack discussed earlier, we anticipate incurring over $100 million, of write offs over the next couple of quarters, which should reduce our overall CECL reserve balance. Our operating results continue to be pressured by the non-accrual loans, which accounted for over 20% of our portfolio as of quarter end. Some of these loans are on cost recovery and any incoming interest is applied to reduced loan principal rather than being recognized in earnings. We anticipate the run rate profitability of the company to improve in the coming quarters as we continue to make progress on resolving non-earning assets though the exact timing and magnitude remain difficult to predict. Our CECL reserve at quarter end was about $267 million or $5.27 per share, representing 9.7% of our portfolio commitments as compared to $213 million or 7.5% of total commitments last quarter. The change in our CECL reserve was mainly related to the additional allowance on loans that were risk rated five reflecting additional pressure on property values and increased pricing transparency in the market as transaction volumes and the pace of our resolutions begins to pick up. Our Q2 general reserve increased by about $14 million due to some macro assumptions, expectations for ongoing challenges in the CRE market and certain loan specific assumptions. Over 70% of our total CECL reserve or $195 million is allocated to individually assessed loans, which implies an average estimated loss severity of about 36% on those assets. As of quarter end, had about $665 million of loans on non-accrual status which we estimate impacted our Q2 results by about $15 million or approximately $0.30 per share. Turning to liquidity and capitalization, we ended the quarter with about $86 million of unrestricted cash and total leverage increased modestly to 2.5 times in Q2 compared to 2.3 times in Q1 mainly due to a lower equity balance as a result of the higher CECL reserves. During the quarter, we extended the maturity of our Morgan Stanley (NYSE:MS) facility and adjusted its maximum borrowing capacity to better reflect our near to medium term financing needs. We also elected to terminate our Goldman Sachs funding facility which matured in July as it had no outstanding borrowings and we anticipated limited use in the near term. We continue to enjoy strong support from our lenders highlighting our long standing relationships in the market and we expect to expand our financing capacity once we return to originating new loans more actively. As of a few days ago, we carried about $92 million in cash, which we expect to increase in the coming weeks driven by some loan repayment activity and the planned financing of the two REO assets that are currently unlevered. We remain focused on maintaining high level of liquidity in the near to medium term. We will continue to prioritize financial flexibility and the ability to proactively manage our assets as we simultaneously transition the portfolio to position the company for future growth opportunities. I would like to thank you again for joining us today and we will now open the call for questions.
Operator: Thank you. [Operator Instructions]. Our first question has come from the line of Steve DeLaney with Citizens JMP. Please proceed with your question.
Steve DeLaney: Hello, everyone, and thank you for taking the question. I guess, you're clearly, obviously, you're in a defensive mode and that we certainly understand that and appreciate that. The loan portfolio is in runoff, whether it's repayments, which I think you probably welcome right now or moving loans into REO and then trying to dispose of that, but $2.6 billion I believe, Marcin, at the end of June, as you guys look out the second half of the year, any sense and I realize I'm asking you for a rough estimate, where might the loan portfolio bottom out? As I'm trying to sense, I'm thinking that maybe distributable EPS, we'd love to see that turn around and be breakeven or positive, but it feels like that's going to be hard to do with a shrinking loan portfolio. Just would welcome any of your comments on that particular topic. Thank you.
Marcin Urbaszek: Good morning, Steve. Thank you for the question. Look, I think it's difficult to sort of predict exactly where things are going to be. I think as you mentioned, we are sort of maintaining our conservative stance as we sort of resolve these assets and manage REO. I think Steve Alpart mentioned in his prepared remarks that we anticipate portfolio to sort of trend down by the end of the year. I think some of the resolutions will have a positive impact on run rate profitability. I think in the near term, I think distributive EPS sort of run rate ex-losses will probably trail the dividend a little bit, but as these resolutions happen in whatever shape or form they may happen, whether it's REO that's cash flow positive or we provide seller financing on to a new ownership group or pay down expensive debt, that should improve run rate profitability in the coming quarters and hopefully that's -- it's again, it's sort of hard to predict as to where that's going to shake out and when, but we feel pretty good about the overall trajectory.
Steve DeLaney: Okay. And do I have the math right here? It seems that you've got about maybe it was a comment that Jack made, but I wrote down $100 million of realized losses over the next period, whether that was the next year or whatever, 51 million shares, $2 of hit to distributable EPS from your current expected losses in your loans that you're carrying at five rated or whatever. Does that Marcin, does that range of something in the neighborhood of a $2 share impact to the over loss realizations? Does that job with where you see your portfolio and your reserves?
Marcin Urbaszek: Yes, I think that's right. I think I said anticipate over $100 million in the coming quarters. We have the two resolutions in Q3 already. We are fully reserved on the B Note on that Pittsburgh asset, which we anticipate may get written off as well. So between that and the LA office retail, that's somewhere around $40 million already, and I think as you heard, Jack and Steve mentioned, the additional visibility will likely add to that. So depending on timing and when these deals can close, it could be north of $100 million by the end of the year but exactly, whether it's Q3 or Q4, it's sort of hard to predict but I think you're roughly in the neighborhood.
Steve DeLaney: Got it. Well, I think you guys are working through it and doing best you can. In the meantime, appreciate the effort towards helping shareholders out a little bit with the stock buyback. I think that's a nice balance to your asset resolution efforts internally. So thanks for your comments.
Marcin Urbaszek: Thank you. Appreciate it.
Operator: Thank you. Our next question has come from the line of Douglas Harter with UBS. Please proceed with your questions.
Douglas Harter: Thanks. I believe in the prepared remarks you said you're seeing greater transparency around property pricing. Could you just talk about your comfort in being able to resolve your loans at or near the marks kind of given that improving transparency on price?
Marcin Urbaszek: Sure. Good morning, Doug. Thank you for joining us. Thanks for your question. Look, I think we feel pretty good as we sort of go through the process and there's more visibility and more transparency. We obviously try to be proactive with respect to some of these reserves as some of these assets go through the process. I think generally we're not no one in this market is going to be 100% correct on these marks, but we feel pretty good about where we are sort of in the near term for some of the assets that we have in the pipeline to hopefully resolve by the end of the year.
Douglas Harter: Great and then, Jack, I know you said that there still could be kind of one off new problem assets. Can you just help us get comfort in the fact that kind of the current risk ratings kind of have your arms around the problems and as we look to kind of see the pace of new problem asset formation flow?
Jack Taylor: Yes. Thank you, Doug, and thanks for joining us. We are comfortable with the current risk ratings and in fact, I would say we've been on forward foot in terms of moving things from a four to a five and we're looking at the overall environment that makes us still be circumspect about what's to come. We think things are improving. We think that the market and our own portfolio is towards the end of this stress period and we're emerging into greater liquidity in the market as well as greater price transparency because the transaction volume is picking up. That's not to say that we won't have some additional loans that move into the four category or down to a five category, but I will say with respect to the fours, those are some that we expect that we'll see a full payoff for some of them and we may see some migrate to five as we did with the Denver office loan and we are not sure about the direction for some of them, but it looks like they're progressing in a way that we're comfortable maintaining with a four at this time. I don't know if that's responsive to you. I hope it is.
Douglas Harter: It is. Thank you, Jack.
Operator: Our next questions come from the line of Stephen Laws with Raymond James. Please proceed with your questions.
Stephen Laws: Hi, good morning. I wanted to follow-up on a couple of Steve DeLaney's questions. First, as you think about the non-accrual loans, I think you mentioned $15 million and $0.30 drag. I was curious how much financing do you currently have on those loans and what would the rate be on that cost of debt?
Marcin Urbaszek: Good morning, Stephen. Thanks for joining us. Thank you for your question. So it really depends on which asset it is. They are mainly financed through a variety of different sources. We obviously have the NPL line that you can see in our filings that we have been utilizing that's sort of $650 million over SOFR. So obviously that's expensive, but it's a good liquidity tool for us. Some of the other assets are on different facilities. So they're generally financed to varying degrees, while the REO is currently unlevered. But as I said earlier, we will we intend to finance them as well just to increase liquidity and give us some more flexibility going forward.
Stephen Laws: And so when we think about use of liquidity or proceeds as these resolutions occur, is it fair to say that that's probably where you get the biggest bang for your buck is paying down the financing on those non-accrual facilities and that's what's going to drive any near term improvements in profitability?
Marcin Urbaszek: I think it's either that or if the collateral property on a gets sold, so that then we would sort of pay off the financing or if we provide financing the new ownership group, which we've done in the past, it'll most likely be from sort of interest income on the new asset and that way we may choose to finance it more efficiently. So it's going to be a variety of different tools depending on which direction some of these assets go.
Stephen Laws: Great. I'm still lucky you can see my notes because that's my next question is, how are you thinking about providing financing on the loans? I think if I heard correctly, the two resolutions that took place in Q2, you did not provide financing to the buyers of those assets. So curious kind of how do you guys make that decision? Are there certain assets that you're more likely to stay attached to, other assets maybe that you don't want to lend against going forward? How do you guys make that decision and how much more difficult is it to do a resolution when you're not willing to provide financing to the buyer?
Steve Alpart: Hey, Steve. Good morning. It's Steve Alpart. Thanks for joining. I'll take that one. It really depends on the specific asset. As you heard on the call this morning, some of these have resolved without staple financing and some of them will need to resolve with staple financing. It will always be asset by asset decision, but for the office assets, it will be very typical that we would consider or need to provide stable financing. Now that won't always be the case. We talked about the L.A. mixed use office and retail asset and that was an all cash buyer, no staple financing, but with the other cases where we may need to provide staple financing. So it will always be case-by-case but in general it would say it'll be more likely on some of the office assets.
Stephen Laws: Great. Appreciate the comments this morning. Thank you.
Operator: Our next questions come from the line of Jade Rahmani with KB. Please proceed with your questions.
Jade Rahmani: Thank you. The non-accruals in the 10-Q show up as $453 million while the collateral dependent loans are $545 million. Do you happen to know what the difference is?
Marcin Urbaszek: I think that may be carrying value under non-accruals ex the reserves aid. I think that's the difference. The balance of the non-accruals is about $660 million as I mentioned in my prepared remarks.
Jade Rahmani: Okay. Thanks a lot. That makes sense. I guess just the realized losses that you identified, is the preponderance of those already reflected in book value? Could you give a sense as to where you expect book value to trough?
Marcin Urbaszek: Yes, that's a good question. The numbers that we cited are reserved for already. So the realized losses, we feel pretty good about those reserves. Again, there may be some adjustments, some minor adjustments as these loans sort of get to the finish line. I think it's hard to sort of predict where book value might be sort of generally in this type of market. If you recall, Jack mentioned there may be some additional credit migration. I think we generally feel pretty good about where we are. I don't think this cycle is over, but I think we are encouraged by slower pace of credit migration and as we said in the prepared remarks, we feel like the balance of the CECL reserve should trend down from here, but again, there may be some one offs here and there going forward. It's hard to predict.
Jade Rahmani: Thank you very much.
Operator: There are no further questions at this time. I'd now like to hand the call back over to Jack Taylor for any closing comments.
Jack Taylor: Well, thank you everybody for participating in our call. We want to thank you for your continued support and as I would be quick to say and also to the team for all the hard work that they're doing through this challenging period where we're making very good progress and have some more wood to shop and we're confident that we'll get there. Thank you, everybody.
Operator: Thank you. This does conclude today's teleconference. [Operator Closing Remarks].
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