Good morning. My name is Anita, and I will be your conference facilitator. At this time, I'd like to welcome everyone to Granite Point Mortgage Trust's Third Quarter 2018 Financial Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Chris Patta [ph] with Investor Relations for Granite Point. Mr. Patta, please go ahead.

Thank you, and good morning, everyone. Thank you for joining our call to discuss Granite Point's third 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 third 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 maybe 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'll now turn the call over to Jack.

Thank you, Chris, and good morning, everyone. We would like to welcome you all, and thank you for joining us for our third quarter earnings call. We're excited to report another strong quarter for Granite Point. Our originations momentum from the second quarter has continued resulting in solid loan fundings in the third quarter and a healthy credit pipeline of loans that have either already closed or are expected to close over the next couple of months. We funded approximately $250 million of loans in the third quarter, which when combined with limited prepayments helped us to grow our investment portfolio and increase our earnings and the dividend. We've continued to sign up new loans at a vigorous pace and generated a pipeline of new senior floating rate loans of approximately $600 million in total commitments and $400 million of initial fundings. To date, in the quarter, we had funded over $130 million of loans. With our solid originations and the strong forward pipeline, we have committed most of our investable capital. As a result, we chose to access Capital Markets in early October successfully issuing over $130 million of 5-year convertible notes. The net proceeds from our offering provided us with new capital to further grow our portfolio and earnings. It also allowed us to take advantage of the fact that our differentiated origination strategy continues to produce a large volume of attractive investment opportunities across a wide variety of markets. In the third quarter, we generated core earnings of $0.40 per share, an increase of $0.02 per share over the second quarter. We also increased our common dividend by $0.02 to $0.42 per share, which is the second such raise this year and which we believe provides an attractive current yield to our shareholders. We expect our earnings…

Thank you, Jack, and thank you all for joining. We appreciate your time this morning. I'll spend a few minutes reviewing our third quarter originations and highlighting our progress so far in the fourth quarter. Following strong originations in the second quarter, we maintained our momentum in originations and further building our pipeline. We closed 6 new loans with total commitments of approximately $300 million in the third quarter. The decline in our originations quarter-over-quarter was solely related to the timing of loan closings as a few of our loans that appeared likely to close in September was slightly delayed and ended up closing in early October. The exact timing of loan closings in this business can be difficult to predict with any degree of certainty and can be impacted by many factors during the loan negotiation and documentation process. Our total fundings in the third quarter were approximately $250 million, comprised of $240 million from initial fundings for the 6 new loans, $2 million from upsizing pre-existing loans and $34 million from our pre-existing loan commitments. The loans we closed in the third quarter are secured by existing high-quality income producing properties across our target markets. They have a weighted average LTV of 59% and a weighted average yield of LIBOR plus 4.02. As you may remember from our last earnings call, in the second quarter, a $100-plus million retail loan prepaid as a result of the business plan being very well executed ahead of the anticipated time line by a strong sponsor. That loan's prepayment was an excellent result and indicative of the approach we take on retail-related investments. Additionally, at the same time, we also highlighted a large high-quality retail loan that we had in our pipeline. We successfully closed that loan in the third quarter, which…

Thank you, Steve, and good morning, everyone. Thank you for joining our call. Over the next few minutes, I will review our financial performance as well as our capitalization and liquidity. Our GAAP net income for the third quarter was $16.5 million or $0.38 per share versus $15.2 million or $0.35 per share last quarter. Our core earnings was $17.4 million or $0.40 per share versus $16.4 million or $0.38 per share in the second quarter. Taxable income for the third quarter was $18.4 million or $0.42 per share. The difference between our GAAP and tax income was mainly related to the GAAP to tax differences resulting from a formation transaction last year. We declared a third quarter dividend of $0.42 per common share, which was an increase of $0.02 per share versus the second quarter. We believe that our dividend offers an attractive current yield to our investors. Our book value at September 30 was $19 per common share. Our improved earnings and the dividend are a result of the successful deployment of our available capital, higher LIBOR and improving financing costs. Our third quarter originations and strong forward pipeline essentially committed our available liquidity early in the fourth quarter. As a result, we accessed the Capital Markets in early October, issuing over $130 million of 5-year senior unsecured convertible debt to provide us with new growth capital and to further diversify our balance sheet. The net proceeds from this transaction were approximately $127 million, inclusive of the partial exercise of the overallotment option. We're quite pleased with the offering and we believe it positions us well for future growth. As a result of this transaction and the interest expense associated with the convertible notes, we expect a moderate drag on earnings in the near term. We believe the…

[Operator Instructions]. The first question today comes from Stephen Laws with Raymond James.

Jack, if you could maybe start with following up on your competition comments. Appreciate the color you provided, but can you give us as a little bit more detail on what you're seeing in the largest, say, 10 or 15 MSAs versus what you're seeing in the MSAs below that, which I think is probably a little bit more where you operate given your average loan size? Maybe a little color on competition across different MSAs?

Well, what I would say is first, thank you for your question, good to speak with you. I would say that keep in mind that we're active in the top 5 MSAs, who are probably something like 40% of our portfolio. So we expand into MSAs 6 and above, but we're not only active there. I would say that we are seeing a bifurcation in the market generally, CLO-related assets, meaning those who qualify for CLOs are more likely to be found in the upper MSAs, 6 and above, then maybe in the top 5 just because of the rating agency approach on them. And so that puts some spread pressure on the smaller markets compared to the top 5. However, I would say we're still finding more pricing power in the larger -- I'm sorry, in the smaller markets, the MSAs 6 and above. And so you're right that we're doing smaller loan sizes, that's true also in the Top 5 markets, but the competition for the top 5 markets is more fierce than it is for the markets 6 and above.

All right. That's helpful. Jack, I appreciate that. Steve, following up on your comments on the portfolio, especially around repayments, looking at the top 15 loans, it looks like asset 12 has an original maturity of this month. As the others relates, only asset 5 in the first half of next year. Are there any other material repayment loans we should consider there? Or kind of -- I know it's a little bit difficult to project, but outside of those 2, can you provide us any more color on how we should think about taking your origination volume and moving that towards the net portfolio growth number?

Thank you for the question. It's Steve Alpart. So Steve, we mentioned earlier, on annual run-rate basis, 25% still feels like a pretty good number to us. We have a couple of loans that we're tracking that we expect to pay off in 2019. It's hard to predict when they'll pay off, so we don't really want to give specifics about what will pay off, say, in Q1 or Q2. But I think overall the 25% number on an annual basis still feels like a pretty good number to us.

Okay. And lastly, Marcin, one question for you on the tax GAAP difference. I know it was roughly [indiscernible] taxable and core. Year-to-date, I believe taxable income has exceeded dividend due to some accounting roundup formation transaction. Can you provide us any color with what difference remains it'll be realized over time? I don't know if that's 2 quarters or 6 quarters or what that time period is, but any color on that the remaining taxable GAAP difference that will come into play?

Thanks for joining us. I would say, look, we are largely done with that, there's a few million dollars left. It is highly dependent on when the original portfolio repays or prepays. So what you saw in Q3, we really didn't have any significant repayment. So taxable income was much closer to our GAAP in core earnings. That said, if we have significant prepayments over the next 2 quarters, then those happens to be the loans from that original portfolio. We will amortize probably the rest of that difference, but at this point, I would say it shouldn't be a major driver of our results going forward. And our dividends and core should be closer than they have been in the past.

Next question comes from Jade Rahmani with KBW.

Can you discuss your approach to asset management? How proactive you are in dialogue with borrowers? And also, if you're seeing any credit issues in the portfolio?

Hey Jade, this is Steve Plust, I can handle that one. Asset management is pretty critical to our organization and our investment philosophy. Our culture is that our originators maintain ownership of the asset from closing through final repayment, and they are primarily responsible for tracking the performance of the loans. Given the nature of these assets, there are periodic conversations that had between us and the borrowers' budget reviews, leads approvals, capital events of that nature. So we're pretty actively in conversation with our borrowers. We have a third-party servicer. We have multiple third-party servicers to engage in, what I call, ministerial data collection and processing, but we maintain the primary decision making authority over how to manage our portfolio. That being said, our portfolio is 100% performing. We don't have any loans rank 4 or 5 in our risk rankings, and we don't see any potential impairments in our loans in the near term. That being said, we're managing the portfolio comprised of a large number of loans secured by transitional properties. So it wouldn't be unexpected or out of the ordinary if from time to time, one or more loans may migrate downward.

Have you had any recent loan modifications?

Not from a credit perspective. We have amended a number of our loans to retain them and harvest the value from them as the business plans progress and the sponsors' needs defer over time.

Okay. In terms of the slowdown in repayments that took place in the third quarter, was there any specific drivers of that since most of the industry is showing a pretty big spike in repayments?

I can handle that one as well. I can't speak to our competition, but a couple of factors are: one, our portfolio is maybe perhaps a little bit younger than that some of our peers. So it's possible that our business plans haven't ripened as much as other portfolios. That's one possibility. Another is, as I alluded to you before, we've been fairly active in amending loans over time to harvest them and maintain the asset balances. We work fairly closer with our borrowers, we're aware of their plan, and we've been pretty successful doing so.

Do those amendments show up as new originations? Or -- and are there any modification fees that would result?

The answer to both is no.

And in terms of how you modify the loans, are you talking about extending the term and adjusting the rate or anything else?

Extending the term, adjusting the rate, getting more call protection of the 3 biggies. Situationally, we may provide additional capital for their business plans. We may recharacterize certain future funding from 1 bucket to the other as the business plan changes and that's the lion share of what we're dealing with.

A bigger picture question. What impact do you think additional interest rate hikes are going to have on overall commercial real estate transaction volumes and cap rates, mainly with respect to the stabilized and fixed rate business rather than the transitional floating rate type?

I'm glad that you -- this is Jack. Hi Jade. I'm glad you specified because we don't think it's having much of an effect on the transitional floating rate market. And that's for all sorts of reasons, but I will address your question on the fixed rate market. Interest rates going up should have a dampening effect, but I don't believe a huge effect on loan volume in the fixed rate market. Most people are seeking the long-term -- say, on takeout of the floating rate loan, seeking the long-term fixed rate financing as the natural consequence of the evolution of their business plan and the property of reaching stabilization. The rates have not actually -- the forward curve is not really predicted to be going up that much over the next period of time, but if it does, people are still going to be wanting to walk in the rate. So our view is that the loan volumes in the CMBS market, for example, could be noticeably, but not dramatically reduced.

Just as far as how you think about the organization strategically and considering capital constraints, are you considering additional business lines that could complement the core focus and expand the type of products you could provide to customers make better leverage on the loan -- lending platform you have in existing relationships, joint ventures and things of that nature?

Yes. Thank you for that. And what I'd say is we're always evaluating various business opportunities that will drive returns for our business. Our team, as you may know, has strong capabilities to execute on a variety of investment strategies because we have done so over a long span of careers in commercial real estate. But since going public last year, we've really been solely focused on deploying our capital, growing the balance sheet and getting our business to a more run rate performance, if you will. So we're not currently actively looking to expand our business, but that's not to say we would rule out potential partnerships, JVs or other initiatives in the future as long as that makes sense from a strategic and risk perspective and are beneficial to our shareholders. So not now, but potentially in the future.

[Operator Instructions]. The next question comes from Chris Muller with JMP Securities.

Most of them are answered already. I guess, last one I have here, can you just a touch on the CLO market a little bit, what you're seeing competition wise and then your appetite for tapping into that again?

This is Jack. Thank you for your question. Let me just make sure I understood. It was real hard to hear you. The first part was, what effect it's having on competition, was that it?

No. What you're seeing competition wise in the CLO market with spread compression, you think things are bottoming out there at all and then just your appetite for turning to that in the future?

Right, so we -- thank you. I understand. We view the CLO market as a highly beneficial market for firms such as our own because of its advantages having the nonmarked-to-market, non-recourse financing, et cetera and as you may know, sounds like you do, we did issue earlier this year. So we're always evaluating that market, and we believe that it stays open to issuers like us and still retains the benefit that we look at earlier in the year. With respect to its effect on competition, I would say, it's a fool's errand to try to predict where bond spreads are going to be going, but they seem to be holding in nicely and people are originating across the market, originating to CLO execution takeouts on their spreads and the loans that they are selecting. So we do see an ongoing bifurcation in the market, where there are loans that can easily fit into the CLO context and they're being bid up. And there are loans that don’t fit so well and they're not being bid as aggressively. And there are many, many variables that go into that, but we're witnessing it and especially it seems, as firms get closer to doing print in the CLO market. You can look back over the past month or so and see that they were getting more and more aggressive on arb getting assets and seeking to print. Does that answer your question?

The next question comes from Ben Zucker with BTIG.

I wanted to ask about the retail loans a little bit. I know it popped out as a big component in your quarterly originations, and I think I heard your comments about loan size is skewing that metric a little bit or a lot bit, perhaps. Still I think it's clear that you guys haven't redlined that property type. So just given the heightened attention around the retail sector, could you discuss what it is that you guys are looking for when you're underwriting a retail property?

Hi Ben, it's Steve Alpart, thank you for the question and for joining. So you've probably heard us on prior calls talk about retail where we're continuing to be very selective. We're focusing mainly on the defensive retail, defensive centers where the tenants providing essential goods or services, where the tenants are going to be more internet resistant, it could be grocery, the neighborhood center, it could be a lifestyle center. We find that those type -- that type of retail tends to be the most resistant to threats from e-commerce, et cetera. We're very focused on sponsorship. We're very focused on strong demographics, mix of the tenancy. If you look at the loan that paid off and the loan that we just did, there are similar size -- the one that we just did this quarter was kind of more of an urban lifestyle entertainment center, part of a larger mix use project, very strong infill sub-market, very experienced sponsor with lots of equity behind us in the deal, good basis for our loan, good in-place cash flow today, kind of a light and lift type business plan with some upside in the future. So that's the big picture and the loan that we just closed this quarter was very much akin to that. But we are still being very selective on retail. We don't have any retail in the pipeline currently from my recall, which is not to say that we wouldn't do a retail loan in the fourth quarter, but right now we have no retail loan in the portfolio. And if you look at the percent of the portfolio, we have no specific limit, but it's been -- the level right now has been about where it has been in the last couple quarters.

As a quick follow-up on that, are you observing less competition now for the retail lending product, perhaps making the risk return profile more attractive from the vantage of a senior secured lender?

I think that's probably somewhat true. And the reason I say somewhat true, but not very true is because we are focused on very solid credit with strong -- all the things I just mentioned. So yes, you can get paid a little bit more on a retail loan, but the spreads aren't dramatically different because we're being very selective and focusing on what we believe are the more strong credits.

I hear you there. And then, I guess, just lastly, most of my questions were asked and answered, but how should we think about the pace of deployment around your future funding pool. I think that's like $450 million right now. I'm just -- I'm wondering is there like a quick and dirty kind of schedule like you provided for repayments like something like 25% per year funding, something like that?

So if you look at the end of the third quarter, we had about $440 million of future funding commitments. We typically think of that, that not 100% of that will fund because oftentimes the loan will prepay before the loans that we fund, but we think about it, that probably 90% to 95% of that will fund over time. You could see in the third quarter, we funded about $36 million, and we have been seeing as the portfolio grow, the steady increase in those fundings quarter-over-quarter. It's hard to predict the exact number each period, but funding about 10% or 15% of the total remaining balance per quarter is probably a decent estimate with caveat that, that will very much vary quarter-to-quarter.

This concludes our question-and-answer session. I would now like to turn the conference back over to Jack Taylor for any closing remarks.

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

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.