Granite Point Mortgage Trust Inc.

Good morning. My name is Daryl, 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. All participants will be in a 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 Preda, sorry, Investor Relations for Granite Point.

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 Urbasic, our Chief Financial Officer, Steve Alport, our Chief Investment Officer and Co-Head of Originations, Peter Murau, our Chief Development Officer and Co-Head of Originations, and Steve Plus, our Chief Operating Officer. After my introductory comments, Jack will provide a brief recap of market conditions and review our current business activities. The eval part 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 of the company's control. Forward-looking statements reflect our views regarding future events and are subject to uncertainties that could cause actual results different materially from expectations. We see our findings 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 a substitute for the financial information presented in the accordance with GAAP. The reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in our earnings release and slides, which are available on our website. I'll 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 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 and 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 it 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 and April, following the substantial rise in interest rates at the end of the 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 and quarters. as well as a step up in anticipated loan repayments. Our proactive approach to asset management has resulted in meaningful progress in that we resolved four 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 to $300 million of more loan resolutions, which we believe should resolve by the end of 2024. The exact timing 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-recrual resolutions emphasizes a balance between timing, potential earnings, and book value impacts, liquidity needs, and other factors, 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 the activity and the performance of the commercial real estate floating rate low 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 loss 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 markets 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 business 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 shattering 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 consideration 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.