Good morning. My name is Sara, and I will be your conference facilitator. At this time, I would like to welcome everyone to Granite Point Mortgage Trust Second Quarter 2020 Financial Results Conference call. All participants will be in listen-only mode. After the speakers’ remarks, there will be a question-and-answer period. Please note, this event 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 second quarter 2020 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 review our current business activities and provide a brief recap of market conditions. Steve Alpart will discuss our portfolio, and Marcin will highlight key items from our financial results. The press release and financial tables associated with today’s call as well as our Form 10-Q 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, including our most recent 10-K and 10-Q reports, 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. We would like to welcome you all and thank you for joining our second quarter 2020 earnings call. These past months have presented historic challenges to our country, our industry and our company. They do not change, but rather reinforce our core beliefs and approach. We emphasize preserving and ultimately expanding the value of our business for the benefit of our stockholders over the long-term by actively managing both sides of our balance sheet. Through our extensive experience managing through multiple cycles, we understand that at its core, this is a relationship business and that it is critical to maintain strong, productive ties to our borrowers and lenders. This approach best preserves and enhances our assets and stabilizes our liabilities. Maintaining liquidity to support our operational needs and goals is also a primary focus, which has led us to explore potential new funding sources to better position the company for this uncertain environment and to take advantage of what we believe will be attractive investment opportunities in the future. Upon the onset of the COVID-19 pandemic, we swiftly turned our attention to asset and liquidity management through a number of initiatives focused on preserving the value of our investments and the franchise value we have built. And I’m happy to report that we have made significant progress in the second quarter and have continued our efforts since then. Our portfolio continues to perform very well through this period of uncertainty. At quarter-end, we had no impairments or non-accruals and our collections of debt service have been strong, as over 99% of our borrowers have made their payments in accordance with the terms of their loans. Along with the strong payment performance, we have worked with a number of our borrowers to provide them…

Thank you, Jack, and thank you all for joining our call this morning. Over the last few months, as the impact on the economy and commercial real estate market from COVID-19 pandemic has persisted, we have remained focused on asset management and working with our borrowers and lenders, as we constructively manage through this challenging period. Considering this market environment, we believe that our portfolio has so far performed very well from a credit perspective. Our debt service collections were strong in Q2, with over 99% of our borrowers making their payments according to their term. At June 30, we had no impairments, non-accruals or maturity defaults. As part of our proactive asset management strategy and given the current commercial real estate operating environment, we have been engaged in discussions with many of our borrowers regarding various types of loan amendments. Most of these discussions and amendments have involved our hotel and retail loans, which accounted for about 24% of our portfolio at June 30. Our approach has been to provide our borrowers with the time to manage through this challenging period, and in the majority of cases, improve our position are requiring sponsors to make further financial commitments to their property. For the most part, we have granted short-term relief in the form of reallocating reserves or deferring rather than waiving some portion of loan interest, in the majority of cases, resetting the LIBOR floor to actual LIBOR. We have a strong collection of high-quality institutional borrowers and sponsors who remain focused on protecting their embedded equity in their assets, while navigating through the business disruption. During the second quarter, we moved 15 loans to a risk ranking category of four. The downgrade to four – to a four ranking does not mean that we believe there will be…

Thank you, Steve, and good morning, everyone. Thank you for joining our call. Our portfolio continues to perform well in light of the challenging macroeconomic environment. As Steve mentioned earlier, our collections of debt service on our loans have remained strong, but it is hard to predict the future. And given the ongoing disruptions to the economy and commercial real estate market, it would not be surprising to see some pressure on the ability of our borrowers to make payments going forward. Aided by the LIBOR floors embedded in our loans, our net interest income for the second quarter increased by about $5.2 million to $34.4 million versus $29.2 million in the first quarter. However, this benefit was more than offset by $14.2 million, or $0.26 per share provision for loan losses. This higher provision was largely a result of us employing in our CECL modeling and updated third-party macroeconomic forecasts that reflected further impacts on the COVID-19 pandemic. Our results also include a $6.9 million, or $0.12 per share realized loss on a sale of an unencumbered loan, which we opportunistically executed as part of our liquidity management. Lastly, our operating expenses were a bit higher compared to Q1, mostly due to professional and advisory fees. All these factors resulted in a second quarter GAAP net loss of about $1.7 million, or $0.03 per share. Our core earnings for the second quarter were $13.8 million, or $0.25 per share and include the realized loss on the loan sale I just mentioned. Book value as of June 30 was $17.47 per share and included $1.57 per share reduction as a result of the aggregate impact of the adoption and application of the CECL accounting standard. Additional details regarding CECL impacts on our financial statements can be found on Pages 5…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Steven Laws with Raymond James. Please go ahead.

Hi, good morning. First, Jack, to follow-up on your comment, your prepared remarks around the repayments to date in the third quarter, have those been full loan repayments? Or have they been partial repayments? Can you give us any color, I believe, it was around $160 million since quarter-end?

Those have been full loan repayments. There may have been a tad of amortization or something, but I don’t believe. So those are full loan repayments.

Great. And, Steve, I think, you mentioned a few different things in the modification discussion. Have you had sponsors contribute more equity? Can you maybe give us an example of how those conversations are going? How much you’re deferring, or any type of PIK income that’s taking place in those modifications?

Sure. Hey, Steve, good morning. Thanks for joining us today. So as we – as I mentioned, we’ve modified a number of loans. The majority of these amendments are short-term, I would describe as modest in nature. The specifics of each amendment vary, but the common themes are to defer a portion of the debt service payment for a few months, it’s typically about three months. As I mentioned in my earlier remarks, it’s typically by resetting the LIBOR floor to actual LIBOR to be repaid from actual cash flow. We’ve been giving borrowers some flexibility of tapping into reserves. And as we mentioned, we’re also typically requiring sponsors to put in additional equity. So the specifics of each one vary, but those are some of the common themes.

Great. And lastly, around unfunded commitments, how much of the remaining $670 million, I believe, is good news money? How much is available will be drawn down now? How do you think about the timing of the drawdown of unfunded commitments?

Sure. The – well, the timing is obviously highly variable and depends on what’s happening in the market. In a bull market, when loans are being refinanced before they mature, we would expect that loans would pay off before all the fundings are drawn. And in this environment, loans are likely to extend in the pace of future fundings may flow. Going to part of your question, a significant amount of the future fundings relate to good news money. And certainly, over the last couple of months, we’ve seen a slowdown – a pause, I would say, in leasing. And we assume for liquidity purposes that all of the future fundings are drawn. But in this environment, we do expect that would slowdown.

Great. I appreciate the color. Thank you.

Thank you for your questions. Good to hear from you.

Our next question comes from Steve DeLaney with JMP Securities. Please go ahead.

Well, good morning, and congratulations on the progress that’s been made since the last call in May. Picking up where…

Thank you.

…sure. Picking up where Stephen left off about the loan sale, the future fundings. The third quarter loan sales were six loans. Can you comment on which types of loans – it looks like about $32 million average, which is in line with your average loan size. But if you could comment on the types and what’s your objective here to remove future funding requirements part of that near $700 million, or was it to kind of reduce some specific credit risk that you saw in those loans? I appreciate any color you can give on that loan sales?

Hi, Steven, this is Jack.

Hi, Jack.

I’ll answer that. Yes. So that was part of our liquidity management. We selected a limited number of loans to potentially sell to generate interim liquidity. And that was selected based – it was done in a manner that would not significantly alter the composition and characteristics of our portfolio. And so we didn’t sell off distressed assets or anything like that. It was meant to not alter the characteristics of the portfolio, and it was quite small in comparison to whole size of the portfolio.

Sure.

So it accomplish its purpose in increasing our liquidity while we’re working through the larger capital financing process. So this really was an opportunistic sale. Such sales are not part of our main strategy…

Sure.

…and we’re not in the market currently selling loans.

Got it. In this concept, we have seen several instances of loans that had been sold. I’m just curious, is that more of a direct market such as reverse inquiry? Or is there actually a semi-brokered market like – through someone like [indiscernible], where you can actually confidentially post a few loans and get a lot of eyeballs on them on a no-name basis?

Well, we understand that there is such a confidential discrete loan marketing process through brokers. We did not use a broker. This was done in conjunction with, I would say, our Evercore process, but…

Right.

…it was really some direct contacts. Our experience is that oftentimes, when you use a broker, especially during a severe downturn or something that tends to – it’s not the broker’s fault, but a broad marketing of that sort brings out a lot of waste of time and activity, because there are a lot of people thinking that you’re in a distressed selling mode, which we were not. We didn’t want to send the wrong signal to the market.

Got it. Makes sense. And my last question, you’ve made good progress on liquidity and now at $145 million. Is there a target level of liquidity, maybe as a percentage of the portfolio that you’re trying to achieve before the Board would consider reinstating a modest cash dividend? And I realize that – part of that liquidity balance may also have something to do with your Evercore project. So any color you could give us about, at what point, I guess, is what I’m trying to get to, Jack. At what point in your creating liquidity, improving the stability of your financing, when do you think the Board would at least be willing to consider some amount of cash dividend? Thank you.

Well, thank you for the question. I’ll actually ask Marcin to…

Sure.

Good morning, Steve. Thank you for joining us as well.

Hi, Marcin. Yes, of course.

Look, I think, our liquidity, obviously, it’s a major focus for us. And I think for the time being, we’re comfortable with where we are. Today, obviously, we don’t have any outstanding calls for further deleveraging or anything like that. However, we’re not taking that state of affairs as the new normal. So we are continuing to focus on further stability of the balance sheet as we’re pursuing other alternatives. I think that is tied, I would say, largely also with the dividend. I think, our dividend is more of a function of liquidity rather than earnings.

Yes.

We are generating earnings. And we obviously are REIT, so we need to pay attention to the distribution requirements as a REIT and all that. So I think, once we have more liquidity on the balance sheet, not for the next several months or more – but more longer-term, I think, that’s how we’re looking at it in terms of the dividend.

Okay. I appreciate everyone’s comments. Thank you.

Thank you.

Our next question comes from Jade Rahmani with KBW. Please go ahead.

Good morning, everyone. This is Ryan on for Jade. Thanks for taking the questions.

Good morning.

I appreciate – good morning. I appreciate the color on the risk for loans. I was wondering if you can provide some additional color around if there are specific assets in that bucket of size we’re calling out that you think might have a more near-term risk of impairment or default?

Hey, Ryan, it’s Steve. Good morning. So as you heard us say, we moved the number of loans into the risk rank four category this quarter. And Jack had mentioned that about half of the loans are – no, I take that back. The majority of the ones that we moved in this quarter are hotels and retail loans. And it’s really less about, I would say, specific concerns on specific assets. It was more just an acknowledgment about what’s happening in the market overall as a result of COVID-19 and that certainly in the short-term, possibly in the medium-term, business plans are going to be delayed.

Okay. And then just in terms of the asset management strategy, can you say what percentage of loans by principal balance you’ve made modifications on so far?

Sure. Happy to talk about that. So we’ve modified or amended a little over quarter of our portfolio, again, concentrated in our hotel and retail loans. Very important to note that the majority of these amendments are short-term and modest in nature. I think I commented on that a little bit earlier, but it’s a little over quarter of the portfolio.

Great. And thinking about alternative sources of capital. At this point, do you think preferred equity is a more likely option that you’re looking at? And how do you think a cost potentially, say, in the double digits changes the economic model of the business going forward?

Hey, Ryan, good morning. This is Marcin. Look, I think we are looking at a variety of different potential financing alternatives. We’re not going to exclude any particular one. We’re focused on making sure that we position the company for the current environment, but also for the future. Balance sheet flexibility in terms of structure and covenants, ability to repay and things like that obviously are very important as we’re looking at it. It’s not just about the cost. So from a strategic perspective, that’s kind of how are we thinking about.

Great. And then just lastly, regarding LIBOR floors, can you say how much of a per share benefit that had in the quarter? And considering the modifications that you’ve done to date that include a resetting of those floors, do you have an estimate of what type of benefit you’d expect in the third and fourth quarter?

Look, I think, if you look at how our net interest income performed in Q2, the increase, I would say, is largely obviously driven by LIBOR floors and on the asset side and a decrease in interest expense. That quarter-over-quarter, that was about $0.09 per share. So, that’s kind of how we’re looking at it. It’s hard to say in terms of what happens in Q3 and Q4. I think we – we’re not focused on really giving up the LIBOR floor economics, as Steve mentioned, in terms of how we’re amending our loans. So we feel pretty good about our portfolio where it is right now in terms of the fundamental generation of interest income.

Got it. Thanks for taking the questions, everyone.

Thank you.

[Operator Instructions] Our next question comes from Doug Harter with Credit Suisse. Please go ahead.

Hey, guys, this is actually Josh Bolton on for Doug. Most of my questions have been answered…

Hey, Doug.

…but – hey. Just thinking about repayments in the back-half of the year, obviously, some strong repayments already. Are you expecting any sort of refi demands or borrowers looking to refi just given where LIBOR floors are in the portfolio versus where current rates are? Or how are you thinking about repayments overall in that context? Thanks.

Good morning. This is Steven Plust. We are seeing a notable pickup in refi activity. I think a fair amount of it is actually related to the progress of the business plans as much as anything. And I can’t speak to the mindsets of the borrowers or where they are financing, but I can just say that we’re getting fair activity in that regard. Nothing like – I would say, nothing like what our regular way expectation of refinancing is, but it’s definitely picked up.

Great. Thanks for that.

Thank you.

Our next question comes from Rick Shane with JPMorgan. Please go ahead.

Hey, guys, good morning, and thanks for taking my questions today.

Hey, Rick.

First question. On the loan sales this quarter, you talked about a $9 million realized loss. It’s unclear to me if that’s gross or net of any potential reserve release associated with that. So I’m wondering if there’s an offset?

Hey, Rick, it’s Marcin. Good morning. Thank you for joining us. There may be a little bit of an offset in there. We haven’t finalized all the numbers yet. So it’s an approximate number. Obviously, there are some reserves attached to some of the – some of those loans. So we’ll kind of see where all that shakes out.

Got it. Okay, thank you. But no unusually large reserve associated with that loan pretty much in line with the portfolio?

Right.

Okay, great. Thank you. Next question, and you had a question at the beginning of the call related to the $158 million repayment. I’m curious, specifically if this is associated with the retail loan in California. And the reason I asked is that, that was a loan that originally had a maturity of two years. It’s your largest loan, and it has at least reached original maturity. And I’m curious if that’s where we’re seeing the repayment?

Hey, Rick, it’s Steve. No, it’s not that loan. We did see another retail loan payoff, but not that one. And we particularly have seen –it’s what Steve mentioned earlier about just the maturation of business plan. So, we’re seeing a multifamily and other property types office. It’s just the natural evolution that some of these loans were very far along borrowers in the market for sales and refis. And now that the market is coming back, you’re seeing people kind of continue those processes, but it was not that loan.

Got it. Okay. That’s great and it’s helpful. We were sitting here going through the permutations and combinations, trying to figure out how to get to $158 million looking at the portfolio. And it brings me sort of to my last question, which is that at this point, do you guys have a readily available what percentage of loans have reached original maturity? And with the extensions, what the remaining maturity on the loan – those loans would be? We just want to start to sort of monitor potential maturity defaults?

Sure. So we – we’ve had no loans come up yet that are on final maturity. The bulk of our loans are in the initial maturity or just now coming up on flat – on that initial maturity date. As part of the amendments that I referenced, we have done a few amendments, particularly where borrowers are stepping up and putting in new equity. And let’s say, they have an extension dare coming up in November, December, January. And they are not likely to meet the debt yield test. Some of them have said to us, that they would like in a way to kind of meet the extension. And what we’ve typically been doing is requiring a pay down. So we’ll say, look, if you don’t meet the extension test in lieu of that, pay the loan down, and a number of borrowers have wanted to do that. But I think it’s a little early to directly answer your question. But the theme so far is good conversation, strong sponsors, sponsor stepping up with new equity, and willing to pay down loans to meet the extension.

Perfect. Okay. And then, look, I think in the unusual circumstances that we’re in sort of those temporal buffers make a lot of sense, because this is such an unusual event we’re experiencing?

We agree. And that’s why we’re pursuing the strategy of working with our good sponsors to give something and get something to work through the period of time. And then…

Got it. And so the takeaway there is to give is going to largely be time and the get is going to be additional capital into the loans?

Of some form. That’s right.

Terrific. Thank you guys very much.

Thank you for your questions. We appreciate it.

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

Thank you. We appreciate you all joining us today and taking the time to be with us and to follow-up on our quarter. These are very, very challenging times. We’re delighted to hear that our analyst community friends and family and investors are well, and we look forward to speaking with you again soon, and to give you a further updated reports on how we’re doing. And we wish everybody good health and safety through this period of time. Thank very much and thank you, operator. We appreciate it.

Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.