Good morning. My name is Bryan and I will be your conference facilitator. At this time, I'd like to welcome everyone to the Granite Point Mortgage Trust's Second Quarter 2018 Financial Results Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn over the call to Chris Patta [ph] 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 second quarter 2018 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 market conditions and some business highlights. Steve Alpart will discuss our second quarter originations, portfolio and pipeline; 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 website or on the SEC's website at sec.gov. In our earnings release and slides, which are now posted in the Investor Relations section of our website, 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 website 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 call and the supporting slides may include forward-looking statements. Forward-looking statements reflect our views regarding future events and are typically associated with the use of 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 may be obtained on the SEC's website at sec.gov. We do not undertake any obligation to update or correct any forward-looking statements if later events prove them to be inaccurate. I will now turn the call over to Jack.

Thank you, Chris, and good morning, everyone. On behalf of our management team, we would like to welcome you all and thank you for joining us for our second quarter earnings call. We are excited to report our best originations and earnings quarter since becoming a public company a year ago. Our business is growing and our results keep improving as we continue to successfully execute our strategy. We made substantial progress in the first quarter building our investment pipeline. As a result, during the second quarter we originated almost $500 million of new senior floating rate loans. These strong originations helped us improve our earnings and dividend, and to grow our portfolio despite elevated prepayments. Since quarter end, we have maintained our momentum, generating a pipeline of senior floating rate loan so far of over $440 million in total commitments. To date, we have closed and funded about $120 million of these loans. Our second quarter originations and pipeline demonstrates the direct origination capabilities of our platform and show that we continue to see many attractive lending opportunities on high quality properties. Also in May we closed our inaugural CLO which furthered our goal to diversify and expand our financing sources and structures. Our results continue to establish Granite Point as one of the leaders in our sector and help us to deliver attractive returns to our shareholders. Additionally, our recent inclusion in the S&P 600 Small Cap Index is another important milestone in our company's development and it should further expand our visibility within the investor community. Moving to our second quarter performance, please turn to Slide 4. Marcin will discuss our detailed financial results shortly, but I'd like to touch on some of the highlights. In the second quarter, we delivered core earnings of $0.38 per share,…

Thank you, Jack, and good morning, everyone. We appreciate your time this morning. I will spend a few minutes reviewing our second quarter originations and highlighting our progress so far in the third quarter and then I will provide some key metrics on our portfolio. Let's turn to Slide 5. After successfully building a strong investment pipeline in the first quarter, we had record originations in the second quarter. We closed 15 new loans with total commitments of about $500 million representing the most loan closes we have had in a quarter since the inception of our company. Our total fundings in the second quarter were about $446 million, comprise of about $411 million of initial fundings for new loans, $2 million from upsizing 2 existing loans and about $32 from our preexisting loan commitments. The loans we closed in the second quarter are secured by existing high quality income producing properties across our target markets and have a weighted average LTV of 62% and a weighted average yield of LIBOR plus 4.60%. Our new loans are well diversified across multiple property types with multifamily assets accounting for the largest portion at 37% of our second quarter originations. We continue to remain selective on retail and hotel. However, we are finding attractive opportunities which meet our credit underwriting standards and target returns in those sectors and about 29% of our second quarter originations were in the hotel sector with the remainder largely concentrated in office properties. Our mix of property types and markets will vary from quarter to quarter as will our volume of originations. However, over time we would expect our portfolio diversification across markets and property types to be pretty consistent unless we see significant shifts in the lending markets. We continue to see a healthy flow of…

Thank you, Steve, and good morning, everyone. Thank you for joining us. Over the next few minutes, I will review our financial performance as well as our capitalization and liquidity. Turning to Slide 9, our GAAP net income for the second quarter was $15.2 million or $0.35 per share. Our core earnings were $16.4 million or $0.38 per share. Our earnings include about $0.5 million or $0.01 per share of prepayment income. Taxable income for the second quarter was $20.6 million or $0.47 per share. The difference between our GAAP and taxable income was largely related to the GAAP to tax differences resulting from our formation transaction last year. We declared the second quarter dividend of $0.40 per common share which we believe translates into an attractive current dividend yield. Our book value at June 30 was $19.02 per common share and was slightly affected by the common dividend in excess of GAAP earnings. As a reminder, since our IPO in June of last year, we have been amortizing additional taxable accretion which has caused our taxable income to be higher than our GAAP and core earnings. This has also caused our common dividend to exceed our core earnings since redividends are largely driven by taxable income. Through June 30, we have amortized about 2/3 of this GAAP to tax difference. We expect the majority of the remainder of this difference to be amortized over the next few quarters. As a result, we would expect our taxable income to be higher than our GAAP and core earnings in future periods, but at a declining scale. The timing of the recognition of this GAAP to tax difference is difficult to predict. However, we estimate it to be more of a short-term factor. Turning to Slide 10. As of June 30, we…

[Operator Instructions]. And our first question today comes from Jade Rahmani with KBW.

I wanted to see if you viewed the spreads that you generated in the quarter as sustainable. It seems like you're still able to generate slightly higher spreads than some of your competitors who are more focused on the large loan space.

Well, Jade, this is Jack, and thank you for your question. It's good to hear from you. We do see a continuing spread compression in the market. We've seen healthy levels of competition. Happily that's been on the spreads and price side and not on the credit. I would say that our view is these spreads will, overall in the market, continue to tighten for the duration of this year, but we do think it's going to start tapering off. We think that it's going to be coming down. We have seen about a 25 basis point tightening quarter-over-quarter for comparable credits, and we think that is going to continue a little bit. But our ability to generate attractive deals, I think, will be sustained. And so while we'll have to move with the market, I think we're going to be able to maintain our double digit ROI.

It is Steve. I just want to add to what Jack just said in terms of the actual composition of Q2 versus Q3. We are estimating the yields on Q3 originations will be somewhere in the mid to high 3s over LIBOR. That's partially a function of what Jack just said as far as market spread. It's also a function of asset mix as well. So Jack just talked about spreads overall, which obviously depend on the specific deal or Q2 originations. I just want to point out we had one loan that was opportunistic in nature. We knew the property, we're able to get outside returns and that one yield probably increased our weighted average second quarter origination yield by about 40 basis points. And also Q2 pipeline, we had a higher hotel concentration than we're going to have -- we expect to have in Q3. So we want to just emphasize that while spreads have been compressing. So that's specific to the mix of Q2 versus Q3. As we've talked about in the past, the spread compression is largely being offset by higher LIBOR and better financing cost on the new loans.

Okay, thanks. That's helpful. How many originators do you have overall?

Well, this is Jack. We have a core team of about 10 people that do both origination and underwriting in a team concept. And I would say six of those are more primarily identified as origination.

Do you think -- what do you think if capital was unlimited, the origination capacity in annual volume terms would be? And let's say you broadened the spectrum to include CMBS loans, potentially mezzanine loans and other products, what's the overall origination capacity of the current team?

Of the current team, well, we've been saying a run rate of about $1.5 billion per year and I do believe that that could be enhanced and grown especially if we added different types of products, but our organic growth is at around $1.5 billion and growing. I would say some of that is and would be dependent upon asset size as well, not just fixed rate versus floating. And as we grow the portfolio, we will be adding some larger loans. You've seen some $100 billion plus loan. So that same team could grow just by sizing up on 25% of the portfolio, getting larger size, we could grow more than the $1.5 billion annual run rate.

And just a follow up to that, what's the company's interest in adding additional cylinders, additional business lines to take more full advantage of the origination team and potentially generate fee revenue if you were able to manage funds for, say, life insurance companies?

Well, we would look to -- that's more -- honestly that's more of a 2019 perspective than a 2018 perspective and we are looking at things like that. We do have a number of parties, counterparties that have actually on a reverse enquiry approached us and asked us to do so for them. And we're looking at that, but we're not moving on it in the near term.

Thanks very much, appreciate that and I think that would confer some franchise value and platform value that perhaps is not recognized in the current valuation.

Thank you. We agree with you.

Next question comes from Rick Shane of JPMorgan.

Marcin talked about available funding capacity of about $400 million. I am curious given where you are both in terms of capital deployment and in terms of G&A expense. Would that largely be pure operating leverage because you wouldn't see an increase in management fees or operating fees? Are we sort of -- are you, I should say, at the point where there is operating leverage developing in the business model?

Yes, I would say, look the $400 million that I referenced, just to make clear to everyone, it's essentially our liquidity for new originations from here on out accounting for our current pipeline, which Steve referred to earlier. So that's essentially just levering off our existing capital base and investing the cash that we would have available to us. So from an earnings perspective, we look at it as just essentially levering off the expense base and levering off the capital structure and then the capital of the company. So that should be pure profit to the bottom line once we invest the available liquidity that we have currently.

[Operator Instructions]. And our next question will be Ben Zucker with BTIG.

Maybe this is for Steve, but has there been any shift in the loans that you guys are now targeting? I ask that because I calculate a fundings as a percent of total commitments of 83% in 2Q and that metric looks to be something like 65% on your subsequent 3Q originations. So could you talk about the loans in your 3Q pipeline a little bit and are you seeing better risk adjusted returns and these may be slightly more transitional assets now? Just curious for your thoughts.

Thanks, Ben, it's Steve. I would say overall the target asset hasn't -- it will not change that much, that could change over time. But if you look at the Q2 pipeline versus the Q3 pipeline, the types of loans and types of assets are similar. I mentioned earlier that we had a higher concentration of hotels in the second quarter versus the third quarter, but as far as the nature of the transitional -- how transition the assets are, I would say it's directionally pretty similar quarter-over-quarter.

Okay, that's helpful. And while I have you, I heard your comments on repayments. Once the portfolio is stabilized, you expect 25% to repay each year. But it didn't sound like you were saying GPMT is at that point yet. So I know you guys quite hate getting this question because of how difficult it is to pin down, but how should we think about repayments in the second half of the year? It feels like 2Q was definitely heavy, maybe 1Q was a little light, but anyway you could help frame this would just be very helpful given that you guys are still ramping the portfolio.

It's Steve Plust, I will handle that one. It's hard to predict from quarter-to-quarter because things happen quickly. Right now, we're looking like Q3 will be a very light quarter for prepays, something significantly less than $100 million. And beyond that, we really can't say right now, can't predict, but we do think that the portfolio will be close to if not stabilize turning the yearend to early 2019.

That's great to hear on full stabilization, thanks. And then lastly, just a bit of housekeeping from Marcin. How much of that GAAP to tax discount accretion is still remaining?

So we have amortized about 2/3 of it through the end of the second quarter. The rest of it, as I said earlier, should be amortized over the next few quarters. But we feel like it's going to be more of a short-term phenomenon than long-term phenomenon. So it'll -- again it'll depend a lot on prepays that we receive. As this is a long prepay, we accelerate this recognition and that happened in the second quarter when we had a lot of prepayments and you saw a pretty significant growth in the taxable income number. So the next 2 to 4 quarters, but on a declining scale and then it should not be such a significant impact to our results.

That's helpful. I guess as you grow your denominator for earnings, the swing effect that that accretion causes is much more muted. Appreciate your comments guys. Thanks for taking the questions.

[Operator Instructions]. At this time, there doesn't appear to be any more questions in the queue. So I would like to conclude today's question and answer session, and turn the conference back over to Jack Taylor for any closing remarks.

Well, thank you very much, Bryan. And we very much appreciate everybody being on the call today and we appreciate your support for the company. We look forward to speaking with you again very soon. Thank you.

The conference has now concluded. We want to thank you for attending today's presentation. You may now disconnect.