Granite Point Mortgage Trust Inc.

Good morning. My name is Donna, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Granite Point Mortgage Trust's fourth quarter and full year 2023 financial results conference call. All participants will be on listen-only mode. After the speaker's remarks, there will be a question and answer period. 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. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining our call to discuss Granite Point's fourth quarter and full year 2023 financial results. With me on the call this morning are Jack Taylor, our President and Chief Executive Officer, Marcin Urbasik, our Chief Financial Officer, Steve Alpard, our Chief Investment Officer and Co-Head of Originations, Peter Murau, our Chief Development Officer and Co-Head of Originations, and Steve Pluss, our Chief Operating Officer. After my introductory comments, Jack will provide a brief recap of market conditions and review our current business activities. Steve Alport will discuss our portfolio, and Morrison 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. We expect to file our form 10-K in the coming weeks. 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 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. We 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 for the financial information presented in accordance with GAAP. The 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.

Thank you, Chris, and good morning, everyone. We would like to welcome you and thank you for joining us for Granite Point's fourth quarter and full-year 2023 earnings call. 2023 was another challenging year for the commercial real estate industry for both property owners and lenders. Transaction volumes have remained extremely low. High interest rates have continued to increase the cost of capital, pressuring property values across sectors. They have also created low visibility for market participants about the future cost of capitals. and so further reduce liquidity in the sector. At the end of 2023, we communicated our cautious approach to the market while putting more emphasis on maintaining higher liquidity and proactively managing our portfolio to protect our balance sheet and investors' capital. Our team has decades of experience managing various real estate lending businesses through market volatility caused by various economic, credit, and interest rate cycles, As such, we firmly believe that during challenging periods like today, emphasizing balance sheet stability and protecting the downside is the prudent strategy, both to effectively navigate market uncertainty and to position the business for future success and growth opportunities, even though such steps pressure the company's returns and profitability in the near term. In mid-2022, with the expectation of continued Federal Reserve actions and the resulting impact on commercial real estate fundamentals and valuations, we shifted our strategy from new loan originations to increasing liquidity, to further diversifying our funding sources, and to proactively managing our portfolio by collaboratively working with our borrowers. We're pleased to report that in using this approach, we have accomplished a number of our goals in navigating the market challenges. We have reduced our leverage to one of the lowest levels in the industry. and well below our target range. We realized a significant volume of loan repayments, paydowns, and resolutions, totaling over $725 million last year, illustrating the liquidity embedded in our portfolio. And we resolved several non-accrual loans as we addressed select credit issues. Our proactive balance sheet management strategy also enabled us to repay with cash two convertible bond maturities totaling over $275 million within 10 months of each other, the latest of which was in October of 2023, as we did not want to access the capital markets during this challenging period. We have also opportunistically deployed capital into our own securities. As part of our flexible capital allocation strategy, and given the attractive relative value, over the course of 2023, we repurchased about 2 million shares of our common stock, representing some 3.8% of our shares outstanding, generating book value accretion of about 35 cents per common share. We currently have a little over 4 million shares remaining under our existing authorization, and we intend to remain opportunistic with respect to any future buyback activity. We believe that despite the significant market challenges our industry has faced over the last couple of years, Our granular senior floating rate loan portfolio has delivered relatively attractive returns, benefiting from higher short-term rates and diversification across property types, many markets, and many sponsors, who generally remain supportive of their investments. Although transaction volumes have remained subdued across the real estate market, our portfolio has benefited from its broad diversification and middle market focus, And as I mentioned earlier, we realized a strong pace of loan repayments last year of over 20% of our portfolio. The loan payoffs have been across property types, the largest of which, or about 35%, was related to loans collateralized by office properties. In fact, over the last couple of years, our exposure to office loans has significantly declined by over $500 million, or about 30%. primarily due to repayments and paydowns, and also select loan resolutions. Many of our repayments have come from loans that have been previously amended to allow borrowers more time to progress on their business plans and complete their exits through either property sales or refinancing. This illustrates the benefit of working with our borrowers. The pace of repayments remains volatile and uncertain, and we will continue to manage our business accordingly. While we believe our conservative underwriting has helped our portfolio performance, given the severity of market challenges, we are not immune to experiencing select credit issues, which we continue to proactively address, including the resolution of a San Diego office loan in the fourth quarter. As we progress on various resolution strategies for certain loans, during the fourth quarter, we downgraded two loans from a risk rating of four to a risk rating of five. Both of Baton Rouge mixed-use retail and office assets and the Chicago office assets are in various stages of resolutions involving potential property sales by their sponsors, which Steve will address shortly. Our GAAP results include additional credit loss provisions mainly related to the five rated loans, while our overall fourth quarter CECL reserve was 4.7% of total commitments versus about 4.9% last quarter. Overall market sentiment has improved somewhat over the past months, following the recent shift in the Fed's stance pointing to anticipated reductions in the federal funds target rate during 2024. And we believe that sentiment and activity will likely continue to improve, particularly during the second half of the year. However, the continued strength in the labor market and consumer spending supporting the overall performance of the U.S. economy may impact the timing of such interest rate cuts, which may further delay the recovery in the commercial real estate market. Although we have seen a modest pickup in transaction volumes in the industry, we believe the future path of macro trends remains uncertain. Fundamental performance across property types continues to be uneven, and high interest rates all contribute to continued constrained liquidity in the real estate market. As such, in the near to medium term, we will continue to emphasize maintaining higher liquidity, working with our borrowers to facilitate repayments, and resolving our non-accrual loans, giving their meaningful impact on our returns. We believe that these actions over time will help improve our run rate profitability while positioning us to redeploy our capital into attractive investments and grow our portfolio as the real estate market stabilizes. I would now like to turn the call over to Steve Alpart to discuss our portfolio activities in more detail.