Granite Point Mortgage Trust Inc. (GPMT) Q3 2017 Earnings Report, Transcript and Summary

Good day, and welcome to the Granite Point Mortgage Trust Inc. Third Quarter 2017 Financial Results Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference call over to Ms. Maggie Field [ph] with Investor Relations for Granite Point. Ms. Field [ph], the floor is yours, ma'am.

Thank you, Operator, and good morning everyone. Thank you for joining our call to discuss Granite Point's third quarter 2017 financial results. With me on the call this morning are Jack Taylor, our President and CEO; Marcin Urbaszek, our CFO; Steve Alpart, our CIO; and Steve Plust, our COO. After my introductory comments, Jack will provide a brief recap of our business strategy, a market update, and some business highlights. Steve Alpart will discuss our third quarter originations and portfolio, and Marcin will highlight key items from our financials. The press release and financial tables associated with today's call were filed yesterday with the SEC. If you do not have a copy you may find them on our Web site or on the SEC's Web site at sec.gov. In our earnings release and slides, which are now posted in the Investor Relations section of our Web site, 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 that this call is being webcast and may be accessed on our Web site 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 and the supporting slides may include forward-looking statement. Forward-looking statements reflect our views regarding future events and are typically associated with the words such as anticipate, expect, estimate, and believe or other such words. 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 which can be obtained on the SEC's Web site at sec.gov. We do not undertake any obligation to update or correct any forward-looking statement if later events prove them to be inaccurate. I will now turn the call over to Jack.

Thank you, Maggie, and good morning everyone. Thank you for joining us for our third quarter earnings call. On behalf of the company and our Board of Directors, we would like to welcome all of our investors and analysts. Thank you all for your support of our business. The last few months have been quite active between completing our IPO and formation transactions, establishing a significant initial $2 billion borrowing capacity with several large financial institutions and commencing the investment of capital. As a reminder, Granite Point was formed in order to continue and grow the commercial real estate lending established by Two Harbors, in 2015. As part of the formation transaction Two Harbors contributed its commercial lending business to Granite Point. This included a portfolio of approximately $1.8 billion in assets primarily in loans that the Granite Point team had originated on behalf of Two Harbors. In exchange for the contribution, Two Harbors received approximately 33.1 million shares of Granite Point common stock. Since quarter end, Two Harbors has completed the distribution of its Granite Point common stock to its shareholders. This distribution allows Granite Point to have a fully floating market capitalization, which we believe provides our investors with significant liquidity in our stock. Please turn to slide two of the presentation. For those of you who are new to our company I'd like to take a couple of minutes to review our business strategy and discuss our view of the current market environment. Granite Point is focused on directly originating and managing senior floating rate commercial real estate loans. We employ a fundamental, value-driven investment approach backed by an intensive credit diligence with cash flow as a key underwriting metric. Our aim is to construct on an asset-by-asset basis a portfolio that is well diversified across markets and property types. We target institutional-quality existing income producing properties sponsored by highly regarded sponsors who have demonstrated expertise in a particular asset class. We typically lend in the top 25 and up to the top 50 markets in the U.S., and target loan sizes ranging between $25 million and $150 million, stabilized LTPs between 55% and 70%, and yields of LIBOR Plus 4% to 5.5%. Additionally, and importantly, we benefit from a very talented and experienced team. Each member of our senior investment team has over 25 years of commercial real estate lending experience, and has successfully navigated through multiple economic, real estate, and interest rate cycles. The members of our senior investment team have worked together for the majority of their careers, and are complemented by a seasoned team of commercial real estate industry professionals with an average of 12 years experience. Over the years our commercial real estate team has developed a broad set of industry relationships which has allowed us to focus on directly originating our portfolio, competing on flexibility, creativity, and a reputation for reliability, rather than on the loosening of loan structure. Turning to slide three, our differentiated and proven origination platform allows us to select from a broad array of markets and property types to find the best risk-adjusted returns. For example, secondary markets, which we define as MSA 6 and above in the United States, often provide higher yields for loans with similar credit quality to those found in primary markets. The primary markets, which we classify as the top five MSAs account for about 40% of our portfolio, while the rest is in secondary markets. We believe that our fundamental and relative value investment approach and disciplined underwriting will deliver strong stockholder returns over time. The overall market for commercial real estate lending continues to be very favorable especially for our strategy focused on senior floating rate loans. Real estate fundamentals remain strong across most markets and property types, with ongoing rent growth and improving the occupancies. In general, real estate valuations are in line with historical averages. The extended recovery in the economy has served to lengthen the commercial real estate cycle, and valuations are supported in part by a prolonged period of historically low construction activity since the onset of the great economic crisis. Even though there has been some competitive pressure on spreads this year, we continue to find ample investment opportunities. And with our lenders working with us on our cost of financing, our overall return profile remains attractive. In our view, the manufacturing of senior floating rate loans offers the most attractive risk-adjusted returns, ands should benefit from a rise in interest rates. We also believe that the alternative lending sector will continue to be supported by enduring structural changes, healthy capital flows and strong real estate fundamentals. Now, please turn to slide four. Marcin will discuss our financial results shortly, but I'd like first to discuss some business highlights from the third quarter. We had a very productive quarter in terms of originations and deploying our investors' capital. After some slowdown in our origination pace in the second quarter, owing to many factors related to our formation and IPO transaction, we were able to ramp up originations and fully engage with our borrowers and business partners. This generated a large deal flow and robust originations for the third quarter. We are please to have originated over $450 million of senior floating rate loans at attractive yields to continue to grow our portfolio, which stood at approximately $2.2 billion at quarter end. 100% of our investments are performing. We continue to generate a strong pipeline of investment opportunities across our target markets. So far in the fourth quarter, we've committed to over $320 million of senior floating rate commercial mortgage loans, some of which have already closed. The rest we expect to close by the end of the year, with funding likely occurring in the second half of the fourth quarter. To accommodate the robust pace of originations post quarter end we upsized our borrowing capacity by $100 million, and are in final negotiations to further upsize our borrowing capacity by an additional $250 million, which will bring our total borrowing capacity to approximately $2.3 billion. We believe that our strategy of targeting primary and secondary markets across the U.S., combined with our broad network of deep industry relationships, and our disciplined underwriting approach enables us to directly originate high quality investments for our portfolio. We are proud of our progress since becoming an independent public company, and are very excited about the future of our business. Now, I will turn the call over to Steve Alpart to discuss our originations and portfolio in more detail.

Thank you, Jack, and appreciate everyone's time this morning. I'd like to spend a few minutes reviewing our third quarter originations and highlighting our progress so far in the fourth quarter, and will then provide some key metrics on our portfolio. Let's turn to slide five, we had a great third quarter of originations. We originated 11 senior floating rate loans, representing total commitments of approximately $450 million. Additionally, we funded over $390 million and experienced no repayments in our portfolio. Importantly, we have long-standing relationships with the majority of these sponsors which speak to our ability to directly originate loans through our platform. Our third quarter originations are secured by existing, high-quality, income-producing properties across our target markets and various property types. Nine of these loans, totaling approximately 80% of the fully funded loan amounts, are secured by office properties and apartment properties. Remaining 20% are secured by industrial and hotel properties. We continue to be highly selective in retail and hotel. The largest percent of these originations by loan amount are secured by properties in the Northeast, with the rest spread across the Southwest, Southeast, Midwest, and West regions. The characteristics of these loans and the return profiles are in line with our overall investment targets. Our third quarter originations demonstrate the flexibility of our platform and ability to execute on a variety of financings, ranging in size from $125 million loan secured by an office building in the Northeast, to a $21.5 million loan on an apartment property in the Southeast. Importantly, each of the financing structures was customized to meet the individual business plans of our borrowers without compromising on credit protection. Turning to the fourth quarter, we continue to see a strong flow of investment opportunities. We have made total commitments to date of approximately $320 million across six senior floating rate loans with attractive returns. Two of these loans closed the first week of October with a fully committed loan amount of $109 million. The remaining four loans are expected to close in the second half of the quarter. Now, moving on to slide six, let's discuss our portfolio as of September 30, which is 100% performing with a total outstanding principal balance of $2.2 billion, a weighted average stabilized LTV of approximately 64%, and a weighted average asset yield of LIBOR Plus 5.19%. In addition to our funded balance, we have $272 million of future funding commitments much of which we expect to fund over the next 18 to 24 months. By property type, our portfolio was weighted towards the office and multifamily sectors, which we continue to find attractive as we remain selective on retail and hotel. The portfolio is also well diversified across markets, and is over 97% floating rate. If we take a look at slide seven you will see our interest rate sensitivity. We believe our portfolio is well positioned for a rise in short-term rates. For instance, if LIBOR were to increase by 100 basis points, as you can see on this slide, our annual net interest income per share would increase by approximately $0.14. Turning to slide eight, I'd like to briefly comment on two recent deal examples to further illustrate our strategy and the types of high-quality assets we originate through our large network of industry relationships. The first deal example is a $30 million senior floating rate loan collateralized by two newly constructed apartment buildings totaling 62 units in Brooklyn, New York. The properties were 79% occupied when we closed this loan. As is typical in such situations, the business plan involves the lease up of the remaining units at which time the sponsor is likely to sell or refinance the property. Our sponsor was a real estate investment development and property management firm headquartered in New York City, and is a repeat sponsor of our platform. They have extensive experience in this asset class and in this overall market, and on two similar properties in this particular neighborhood. We like this type of investment for several reasons. First, the loan is secured by recently constructed apartments in a desirable location within a strong market with low single-digit vacancy rates. Second, we have an experienced sponsor with whom we have an existing relationship. And third, our loan base is attractive relative to the sponsor's bases and recent sales. The second deal example, which closed in the fourth quarter, is an approximately $75 million senior floating rate acquisition loan collateralized by an office property in the NoMa submarket of Washington, D.C.. This submarket is regarded as one of the best performers in D.C.. This sponsored business plan involves a capital improvement program and the releasing of vacant space. The sponsor is a fully vertically integrated real estate company based in the D.C. Metro Area that has extensive experience owning and operating similar value-add office properties along the East Coast, with a concentration in the D.C. Metro Area. We like this type of investment for several reasons. Our loan is secured by a high-quality office building located near Union Station, the largest transportation hub in D.C., and importantly the Class B office vacancy in this submarket is under 5%, which makes it one of the tightest submarkets in the D.C. Metro Area, this low vacancy level is driven in large part by tenants who want to be in this location, and at a discount to Class A reps. Similar to the first deal example, this sponsor was a highly experienced owner-operator with significant expertise executing similar business plans on value-add office properties in this market. And finally, our loan basis is attractive relative to the sponsor's basis and recent sales. So to summarize, we continue to see a great flow of investment opportunities from existing relationships that fit our overall strategy and investment criteria. Based on the strength of our platform, our industry relationships, and our reputation as a reliable counterparty, we are confident that we will be able to continue to successfully execute on our business plan on behalf of our shareholders as we move into 2018. I will now turn the call over to Marcin for a more detailed review of our quarterly financial results.

Thank you, Steve, and good morning everyone. I will spend a few minutes discussing our financial performance as well as our capitalization and liquidity. Our GAAP net income for the third quarter was $11.5 million or $0.27 per share. Core earnings, which is GAAP earnings adjusted for non-cash equity compensation expense, was $11.9 million or $0.28 per share. Taxable income for the third quarter was $14.3 million or $0.33 per share. Our book value per share was $19.22. Turning to slide nine, let's touch on a few drivers of our earnings and quarterly dividend. We had a strong quarter in terms of originations and putting capital to work. As is generally the case in this sector, it is hard to control when the loans actually close and fund. Our third quarter originations were weighted towards the end of the quarter, which impacted our earnings for the period. The earnings impact of our third quarter originations will be more fully realized in the fourth quarter of this year. Since the company is in the growth and capital deployment phase, timing of loan closings can have a material impact on quarterly results. Over time however each incremental investment should have a less material impact on our results going forward. Let's discuss our dividend and its drivers. When setting our dividend, our Board and management team consider multiple factors including our current and projected profitability, sustainability of our dividend, and our taxable income. Tax planning and compliance are important elements of maintaining our REIT eligibility. During our formation transaction contribution of the commercial real estate lending business from Two Harbors was treated as a sale for tax purposes. As a result, we recognized a lower tax basis than GAAP basis of approximately $22 million at the time of the transaction. This GAAP-to-tax difference will result in higher tax accretion versus GAAP accretion over the life of the loan portfolio contributed to us by Two Harbors. End of third quarter, we recognized approximately $2.6 million of additional accretion and taxable income versus GAAP income. We estimate that through the end of 2019, the company will recognize approximately an additional $15 million of taxable accretion which may result in taxable income being higher than core earnings. I will note that this estimate and timing of its recognition may change depending on factors such as additional funding, prepayments, and any potential credit losses among other things. In light of the fact that our third quarter results were uniquely impacted by the capital raised in our IPO and the timing of loan closings, we feel it is beneficial to provide our stockholders with additional insight into our performance by providing one-time guidance on our dividend for the fourth quarter of this year. We anticipate that our dividend for the current quarter will be in the range of $0.38 to $0.40 per share subject to the discretion and approval of our Board of Directors. I would like to caution that going forward we do not expect to provide guidance on dividends or any other financial results. Turning to slide 10, as you may recall, at the time of the IPO we had established approximately $2 billion of financing capacity with multiple counterparties. As of September 30, we had approximately $1.5 billion outstanding on our facilities. Since that time, we have upsized our financing facility with Morgan Stanley by $100 million, and are in final negotiations with another lender to increase their facility by $250 million, which would bring our total borrowing capacity to about $2.3 billion. We believe financing markets remain healthy and are operating in an efficient manner. As we grow the portfolio, we will look to optimize our cost of capital, and diversify our financing profile to include additional financing sources, such as syndicated loan positions or other forms of structured funding. We ended the third quarter with a debt-to-equity ratio of approximately 1.8 times. As we grow the portfolio and invest additional capital we expect our leverage to stabilize in the range of 2.5 to 3 times debt-to-equity, which we view as a prudent level given our focus on senior floating rate loans. Our liquidity at the end of the third quarter could support additional originations of about $400 million of senior loans depending on specific investments and available leverage. We are progressing and realizing these originations, and believe we have positioned our balance sheet well from a capital deployment perspective going forward. Thank you again for joining us today. And now I will ask the operator to open the call to questions.

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] And the first we have will come from Jade Rahmani of KBW.

Thanks very much. In terms of the liquidity you sited, is that reflective of optimal leverage in the 2.5 to 3 times range that you cited, or is that based on your current borrowing capacity which could potentially increase.

Hi, Jade. This is Marcin. Thanks for joining us, nice to speak with you again. I would say this is based on our current available capital and capacity. I think we'll get to that 2.5 to 3 times hopefully over the next few quarters.

Okay. Do you have sense of what the headwind from the timing of originations was in the quarter? I suspect that's one of the reasons the stock is modestly weak today.

Sure. Hi, it's Marcin again. I would say, as we mentioned, a significant amount of our loans close in the second half and towards the end of the quarter. I would say it's a couple of pennies of earnings in Q3. And I would say that, as Steve mentioned in this remarks, considering it's almost mid-November when we closed two loans so far, I would expect probably similar pattern in the fourth quarter in terms of closings later in the quarter.

I think you've, in the past, mentioned your emphasis on cash-flowing assets. Would you be able to give some color on the overall portfolio occupancy rate, debt service ratio or debt yield just to give investors and analysts a sense of level of the light transition?

Hi, Jade. It's Steve Alpart, that's for that question. So yes, as we've mentioned, we're continuing to focus on existing properties. The majority of these properties have cash flow in place. And just to give you a sense, like the third quarter for example, the average going in debt yields was in the mix sixes [ph]. And the fact that a lot of these properties are multifamily properties that seem to have a lower cap rate, I think that's reflective of our overall focus on deals with some cash flow in place.

And generally, where would you say you're finding the most value, and could you give any examples of areas that you're avoiding?

Sure. It's Steve again, I'll take that. So, about 70% of our portfolio, as you can see in some of the charts right now, is in office and multifamily properties. And we continue to like those sectors. As you heard me say earlier, we're selective on retail and hotel. We're always looking for high-quality industrial. We do have some industrial in our portfolio. But a lot of the big institutions and public REITs dominate that sector, but we're also looking for high quality industrial. There's a few asset classes that we're not focused on, residential condo loans, land loans would be examples of that. And as you heard Jack say earlier, as far as geographies, continue to focus on primarily top 25 MSA, selectively we'll go to MSAs 26 through 50. There's no regions in the country that we would say are red lines, but there are certainly some regions of the country that we would probably be very quite on generally characterized as not a lot of economic drivers, and not a lot of economic growth, but seeing [ph] a lot of opportunities in the top 25 MSA.

I was wondering on the office exposure; think about trends in space utilization. If you have a property that's nearly entirely occupied but has, for example, a lot of law firms or businesses that in the past have used more square footage. Now how do you underwrite that?

Hi, it's Steve again. So look, it's always going to be asset by asset, market by market, corner by corner analysis. So every situation is a little bit different. But we're obviously aware of the overall trends in the office space. We're going to look at each investment on a fundamental basis. We're going to look at the property, the location, the market, the sponsor. The other thing I would point out is that we're not underwriting to markets improving. The typical profile that we would have would be a deal that's great building, great location, very strong sponsor, well capitalized, lost a tenant or has a rollover coming up, maybe undercapitalized. And we're underwriting to get that property back up to market. So your question about space utilization is an element in that overall analysis. And it's because a lot of factors go into the underwriting.

Thanks very much for taking the questions.

Sure, thank you.

The next we have will come from Steve Delaney of JMP Securities.

Good morning and thank you for taking the question. I'd like to start with payoffs. I didn't pick you in the release or your comments that there were any. Were there no payoffs in the portfolio in the third quarter?

Steve, hi. This is Steve Plust, and I'll handle that question.

Hi, Steve.

Hi. As of September 30, we had no prepayments at all.

Okay, great. And looking out -- I mean obviously you've been lending for some time so over the last couple of years as you were building up the company and the portfolio, if you look out, Steve, over the next two quarters, and I realized it's very difficult to time something between, say, the fourth quarter this year and the first quarter. So maybe on a combined basis over the next six months, are you seeing some scheduled repayments or expected-early repayments over the next months?

Steve, hi, this is Steve Plust again. As far as the fourth quarter is concerned, we've had one de minimis $10 million prepayment so far. We may have one or two more in the quarter which would be less than $100 million, maybe $50 million to $75 million for the quarter. And as we project forward we think in terms of the status of the sponsor's business plan generally as the best predictor of prepays in our portfolio.

Right.

And historically, as we've looked at our portfolio these are three to five-year loans with sponsors with business plans that range from two to four years. So historically, we think that our portfolio in a mature and stabilized manner might add 25% prepays per year.

Per year, okay, great. Now, that's very helpful for the near-term. Thank you so much. Also, just curious on how you guys see your capital markets' flexibility? Maybe a little premature here, you've just done your IPO. But when I look at your capital structure you have $830 million of common equity, so no corporate debt, no unsecured corporate debt at this time. Now I believe you have a wait a period of time to have it in kind of a shelf registration. But as you look at your business over the next year or two, to the extent that you become, you hit that 2.5 leverage, and maybe you don't want to push it too much higher. Do you look at your situation as one where you have the flexibility to issue unsecured corporate notes or possibly convertible notes some time over the next 12 months?

Hi, Steve, this is Marcin. Thanks…

Hi, Marcin.

I would say, look, I think our overall philosophy on just generally capital raising, first and foremost obviously we have to make sense for our shareholders. We have, as you've heard, good use of capital right now, great originations. I think as a public company we obviously have a variety of options available to us from debt, through preferred, through equity, we will look at all those as appropriate and when we have potential needs. I think we have as of right now, I mentioned earlier, we have ample capital for the near-term, and we'll look to stabilize the company and kind of evaluate options as we move forward with our business plan.

Okay, thank you. And just a final thing for me, leverage, I look at our model and we clearly see you getting to 2.5. We hear a lot of people say three times is sort of a practical limit. But frankly we're not seeing many senior floating rate lenders actually get to that level on any kind of a consistent basis. And I'm just curious as you model the company and look towards your IPO, can you say whether 3.0 is realistic. And if I or any other analyst had, say, a 2.9 to 3.0 leverage level in say early 2019, would you look at that as being too aggressive on my part? Thank you. That's my last question.

Sure. Thanks Steve, it's Marcin again. I'll say, look, generally when we think about leverage 2.5 to 3 times on a corporate basis that'll also have some potential obviously liquidity and cash and unencumbered assets. When we look at on an asset basis kind of the standard is 75% advance, so three times debt-to-equity on a loan by loan. And additionally when we think of leverage we think of kind of recourse leverage. If there is an opportunity to do something in that market that non-recourse our overall reported leverage may get closer to that three or higher depending on the opportunities. But I would say 2.5 to three times is kind of the target. So from your modeling perspective I don't think you would too far off in terms of how we're thinking about it.

Okay. I appreciate the comments. Thank you.

Thank you, Steve.

And next we have Rick Shane of J.P. Morgan.

Hi guys. Thanks for taking my questions. Really two things here, I appreciate the outlook in terms of dividend for the fourth quarter as things are ramping up it's important to sort of have that context. I am curious though how to think about the characterization of that dividend. Are you changing dividend policy in the short-term or will this be fully covered from taxable income in the fourth quarter?

Hi, Rick. This is Marcin. Thanks for joining us. Thank you for the question. I think our overall dividend policy, as I mentioned earlier, involves multiple factors. Taxable income obviously is a driver considering we are a REIT. As a REIT we're required to pay out 90% of taxable income. We will be in compliance with that. But I will mention that as you saw the taxable income being obviously higher than GAAP and core there will be some of that disconnect for the next couple years. But taxable and overall profitability and sustainability of our dividend, those are going to be our drivers for the next couple of years.

Got it. Second question, when we think about spread compression in this space, one of the things that we've basically seen is that it feels like the asset sensitivity in this space is basically being given back to the market in terms of spread compression. Do you think over time you will be able to achieve the asset sensitivity of the floating rate loans?

Hi, Rick. It's Marcin again. I think if you look at our reported yields over the last couple of quarters the 6.2 to 6.4 as we reported on kind of realized yield basis, we do believe that there is some asset sensitivity obviously. In terms of overall spread compression, as I'm sure I've heard from others, there has been some early in the year. The one thing that we'll point out our lenders and financing providers have been working with us as well to help accommodate some of that. But I think overall, we feel pretty good about being asset-sensitive to rising LIBOR. So there should be a benefit in our earnings going forward.

Got it, okay. Thank you very much guys.

Thank you for the question.

And the next question we have will come from Fred Small with Compass Point.

Hi, good morning. Thanks for taking my question. Did you give a weighted average portfolio balance for the quarter?

Hi Fred, this is Marcin. Thanks for joining us. If you look in our presentation, on page 15 of the appendix, we provide average balances by category. So that should help you with that.

Okay, great. Thank. And then I guess I didn't fully understand your [Technical Difficulty]

Fred, you're breaking up. We can't really hear you.

Sorry. [Technical Difficulty]

Sorry, could you repeat that. I picked up the dividend guidance, and as it relates to what, I'm sorry?

Do you think core earnings will cover the dividend guidance for the fourth quarter?

Okay, thank you. Look, I think as I said earlier, we have taxable income that's in excess of GAAP and core earnings. We expect that to continue for the next couple of years, as I mentioned earlier as a result of the formation transaction. I think if you look at our core this quarter, our dividend and taxable, I would expect that relationship to persist. Obviously on a per-share basis it's hard to quantify that as the company grows. But overall, I would expect taxable to be in excess of core. And obviously taxable is a big driver of our dividends.

Okay, sure. I mean, what here maps most closely to cash, is it core or taxable?

I would say most of our earnings is cash. I think core is probably the best estimate of cash, so I would probably point to that.

Okay. So the -- just so I understand correctly, the difference you're talking about between the core and the taxable is mostly non-cash?

It's an accretion that we have to recognize for tax purposes as a result of the $22 million GAAP-to-tax difference that we discussed earlier.

Okay. And then last one just on expenses in the quarter were a little bit -- just G&A was a little bit higher than you're run rating in the first half. Is there anything one-time in that or is the current level sort of what you expect going forward?

Sure, thanks. It's Marcin. And I would say considering the company is nearly public as of the end of June, we do have additional costs related to public company infrastructure and just public company expenses, whether it's legal, insurance, Board, and things like that. So it's hard to make comparisons when the business was part of Two Harbors. And some of those direct costs related to public company were not there. I would say our current run rate of expense is -- it's plus or minus somewhere in the range of what we had in the third quarter.

All right, thanks.

And next we have a follow-up from Jade Rahmani of KBW.

Yes, was wondering if Jack of Steven could provide some color regarding the comment "Competitive landscape." Specifically I was wondering if there's been any diminution in the level of competition in the fourth quarter seasonally. And also if you're seeing any, as a result of competition, compromises from lenders in terms of structure or covenants or any other concessions being made to borrowers, fees, et cetera.

Hi, Jade. Thank you, this is Jack Taylor. I would say that we don't think there's been any seasonal lowering of competition in the fourth quarter. It seems like there's been a healthy competition in the market that's continued for the past couple of quarters and in through the fourth quarter. And I would say we're not witnessing competitors capitulating on credit terms, we don't think that there's irrational lending occurring in order to win the deals. In fact, I would characterize the market as a free-flowing market where there's more competition on price than there is on credit.

Thanks very much.

Well, showing no further questions at this time we will conclude the question-and-answer session. I would now like to turn the conference call back over to Mr. Jack Taylor, CEO, for any closing remarks. Sir?

Well, thank you Mike, and we appreciate your hosting us. We'd like to thank everyone for joining us today, and for your support of our business, and we look forward to speaking with you all again soon. Thank you.

And we thank you, sir, and also to the rest of the management team for your time also today. The conference call is now concluded. At this time, you may disconnect your lines. Again, we thank you all for participating. Take care, and have a great day.