Shares of Granite Point Mortgage Trust (GPMT -2.05%) gained more than 10% at the opening bell on Tuesday after the commercial mortgage REIT reported first-quarter earnings. The results provided fresh hope that the business can survive the COVID-19 pandemic, giving investors a reason to buy in. By noon EDT today, it had settled to slightly better than a 5% gain, still beating the broader market.
Granite Point shares have lost 70% of their value since March 1, a victim of the pandemic and its chilling impact on commercial activity. It originates, invests in, and manages commercial real estate debt, and with retail experiencing a wave of bankruptcies and lost business due to stay-at-home orders, the REIT's portfolio has come under pressure.
The company suspended its dividend on March 26 to conserve liquidity, saying that "Granite Point and its borrowers and sponsors are confident that there is significant value in the underlying assets ... there can be no assurances that macroeconomic conditions will not worsen."
Investors got an update on the condition of the business after markets closed Monday, when Granite Point reported net interest income of $29.19 million, which was slightly below expectations, and adjusted earnings of $0.32 per share. In April, more than 99% of borrowers made their payments in full, with 123 out of 124 investments current in the month.
"As the crisis unfolded we shifted to maximizing and preserving our liquidity, focusing on intensive asset management, and enhancing the near-term stability of our balance sheet," CEO Jack Taylor said in a statement. "Drawing on our seasoned team's cycle-tested experience, we remain deeply focused on successfully navigating through these challenging times to preserve our investors' capital and to position our company for future growth and success."
The good news: The sky is not falling. Granite Point so far is handling the pandemic as well as can be hoped for and deserves credit for it. The bad news: The commercial real estate market could be hurt for the next few quarters (if not beyond) by the pandemic and its aftereffects, and it is going to be hard for commercial REITs to quickly rebound.
Given the situation, and Granite Point's reaction, the stock seems like a speculative buy for a risk-tolerant investor. Tuesday's positive reaction to the earnings release is justified, but investors should be warned that there's a reason the stock remains well off of where it traded just months ago.