Good morning. My name is Jason. I will be your conference facilitator. At this time, I would like to welcome everyone to Granite Point Mortgage Trust Third quarter 2022 Financial Results Conference Call. [Operator Instructions] Please note this 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 third quarter 2022 financial results. With me on the call this morning are Jack Taylor, our President and Chief Executive Officer; Marcin Urbaszek, our Chief Financial Officer; Steve Alpart, our Chief Investment Officer and Co-Head of Originations; Peter Morral, our Chief Development Officer and Co-Head of Originations; and Steve Plust, our Chief Operating Officer. After my introductory comments, Jack will review our current business activity 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 were filed yesterday with the SEC and are available on 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 to differ materially from expectations. Please see our filings with the SEC for a discussion of some of the 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 intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in our earnings release and slides, which are now 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 all to our third quarter 2022 earnings call. Over the course of the third quarter, volatility in the capital markets continued to increase with rapidly rising interest rates, tightening financial conditions and reduced liquidity across asset classes, while the geopolitical environment remained unstable. While many market participants expect the Fed to pause in 2023, given the magnitude and speed of recent rate increases, there is less clarity about the full impact of the Fed's actions on the broader economy. With respect to commercial real estate, transaction volume has declined and there is downward pressure on property values. But as we have seen historically, U.S. commercial real estate remains a global safe haven in times like these. While the market uncertainty has kept many investors on the sidelines for now waiting for more clarity, there are several hundred billion dollars of capital waiting to be invested. As compared to the global financial crisis, banks are far better capitalized and the supply and demand fundamentals of commercial real estate are generally in better balance. Our strategy of originating first mortgage loans on high-quality U.S. real estate has proven to be resilient, with our loans supported from the volatility of real estate values by the healthy equity investments of our borrowers and Granite Point benefits from our granular portfolio. As of September 30, our $3.6 billion portfolio consists of 97 loans with an average balance of $37 million. Nevertheless, given these uncertain times, it is prudent in the near-term to maintain a cautious stance emphasizing liquidity and actively managing both sides of our balance sheet. To that effect, we have scaled back our originations by closing only one new loan during the third quarter, which resulted in the lower portfolio…

Thank you, Jack, and thank you all for joining our call this morning. We ended the third quarter with an aggregate committed balance of $3.9 billion and a principal balance of about $3.6 billion, including $313 million of future funding commitments, which accounts for less than 10% of our total commitments. Our portfolio is well diversified across geographies and property types and includes 97 investments with an average loan size of approximately $37 million. Our loans continue to deliver an attractive income stream with a favorable overall credit profile, generating a realized yield of about 5.6% with a weighted average stabilized LTV at origination of 63%. Given our cautious stance due to the market environment, during the third quarter, we closed one new multifamily loans with a total commitment of $45 million and funded about $70 million of total loan principle, which included approximately $28 million on existing commitments. Despite the decline in commercial real estate transaction activity, our repayments and loan paydowns totaled approximately $347 million in the third quarter, which outpaced loan fundings and resulted in a $270 million decline in our portfolio balance over the quarter. As of September 30, our portfolio weighted average risk rating was 2.6, which was largely unchanged from the prior quarter of 2.5 as rating downgrades, which were mainly driven by overall market conditions and challenges in the office sector were offset by rating upgrades. During the quarter, we moved two of our office loans with total UPB of $123 million to a risk rating of 5, place them on nonaccrual status and established a $20 million CECL reserve for these two loans. The collateral properties securing these loans have been negatively impacted by the ongoing impacts of the pandemic on office leasing and reduced market liquidity, especially for office properties. We…

Thank you, Steve. Good morning, everyone, and thank you for joining us today. Yesterday afternoon, we reported a third quarter GAAP net loss of $29.1 million or $0.56 per basic share, which reflects a provision for credit losses of $35.4 million or $0.68 per basic share. Distributable earnings for the third quarter were $8.7 million or $0.17 per basic share and exclude the provision expense. Our Q3 book value declined by about $0.77 per share to $15.24 and was mainly affected by the increase in CECL reserves, which at quarter end totaled $85.6 million or $1.63 per common share and represented about 218 basis points of our total loan commitments. Away from the credit reserve build, our third quarter results were also affected by a $3.6 million or $0.07 per basic share decline in net interest income, driven by two factors: one, our nonaccrual loans; and two, loans with high-rate floors that did not benefit from a full quarter of higher interest rates. As of September, the benchmark rates were above all of our interest rate floors, and our portfolio is now 100% rate sensitive, excluding the nonaccruals. During the third quarter, we downgraded two office loans to a risk rating of five and place them on nonaccrual status. At September 30, we had four loans with a total principal balance of about $330 million that were on nonaccrual status. We estimate that these assets impacted our interest income by about $4 million or about $0.08 per share during the third quarter. However, as Steve just discussed, we successfully resolved a nonaccrual loan in late October, that $114 million retail asset in California, resulting in a new earning asset and releasing additional capital. During the third quarter, we increased our CECL reserves to $85.6 million from $50.1 million at June…

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

Thanks. Just wanted to follow-up on that last thing you said, Marcin, about adding some potential leverage against some of the nonaccruals. Is there any way you could help size that and just to give us some added comfort in the liquidity and how that looks post the convert maturity?

Sure. Doug, thanks for joining us. Thanks for your question. Look, the advance rates are sort of loan by loan specific. So it's hard to be very specific as to what that is. We do anticipate after we pay our bonds to sort of build up our liquidity to sort of where we've been somewhere plus or minus $100 million which we believe is an appropriate level. We might go a little bit higher after that as we get more repayments. So as you heard us say in the prepared remarks, we're very focused on managing liquidity and liabilities. And the types of financing that we closed in the third quarter provide additional funding flexibility. We may have -- we may add another one of such facilities just again to increase funding flexibility if we have to move certain assets between different financing vehicles. And also keep in mind, during the pandemic, we had almost twice the repo exposure that we have today, and we're really significantly delevered, which also sort of provides additional optionality when we may re-lever some assets going forward once the market stabilize.

And just on the new facility, it looks like as of 9/30, it was like a 35% advance rate. Can you talk about was that kind of an interim level of leverage on that? What is kind of a stabilized advance rate on that facility?

Again, it really depends on what assets. It's really asset specific. It sort of varies depending on which loans are financed there. So it's -- and again, it's -- like where with every type of facility like it sort of -- it varies depending on an asset.

Okay. Thanks.

[Operator Instructions] Our next question comes from Steve Delaney from JMP Securities. Please go ahead.

Thanks. Good morning, everyone. I wanted to ask about the new Phoenix loan. It has been around for some time, 2017 origination. Can you just give us sort of some background on that loan? And what recent event or development triggered the downgrade? I assume it was a four previously, but what triggered the downgrade to a five at this point?

Hi, Steve, it's Steve. Good morning. Thank you for joining us this morning. Yes. So the Phoenix office loan, this is more of the loans that we moved this quarter from a four to five. The property itself is well located. It's been nicely renovated. It has institutional quality sponsorship. The borrower had come very close on some leasing. However, the leasing market in Phoenix has been sluggish. So it was just really continued slowness in the business plan, soft leasing market were some of the triggers going to your question why we decided to downgrade it this quarter. We're looking at a bunch of options as we mentioned, and we'll provide more information as we have it.

It sounds vaguely similar to the conversation we had about San Diego, I think the prior quarter. I guess the difference and fortunately, this one is $30-some million loan and not a $90 million loan, lot easier to work with, I guess. Okay. That's helpful to hear. Just the -- you mentioned that, I believe, if I heard you right, that $30 million of your CECL reserve is spread across your three 5-rated loans, correct?

It was $50 million at the end of the quarter of those four loans and one was resolved in October, the retail loan.

That was the Pasadena. Okay. Got it. So $15 million, including Pasadena, right? How much was on Pasadena?

You can see now it gets about $16 million, $16.5 million.

$16 million. Okay. Okay. Very good. $16 million, correct. I do recall that was what you estimated your loss to be. Okay, fine. Thank you. And on the portfolio, I understand clearly your comment about the convert maturity. I wasn't focused on that. So that makes a lot of sense why you would kind of restrict lending here to recover some cash along with your new facility. Is there -- once you get through the fourth quarter and the convert, do you have a target level for the portfolio? I mean, I think the total commitments were like $3.9 million in September. How small would you see the portfolio potentially growing? I think we kind of need that for modeling purposes. Thanks.

There are no more questions in the queue.

Well, wait one second. I'm sorry, we were -- I was on mute and didn't realize. I am -- this is Jack, Steve. Good to speak with you as usual. We believe that there will be a modest portfolio decline and balance by year-end. And we expect that the rate of prepayments will slow down over the course of the year. We had a pretty healthy rate during this year. And as we pointed out, even in the first month of this quarter. And historically, we said that we would have on a normal market run rate portfolio prepayment will be about 25%. We kind of came close to that this year or anticipate that we will fall short of it. But we definitely expect to see a lower pace of repayments in the year. But that's balanced off by the fact that we're building liquidity and being very cautious in this uncertain market. So we're not looking to add a lot of loans in the near term. So while the repayments will slow down, our originations will stay quite modest in the meantime. And I think we would see a modest decline in the portfolio balance in the beginning of the year for the -- until we seek some greater stability.

Understood. So not just a onetime event, but we should expect kind of limited originations for another quarter or two is what I'm hearing. So that's very, very good. All right. Thanks for clarifying that, Jack. Stay well. Bye-bye.

There are no more questions in the queue. This concludes our question-and-answer session. I'd like to turn the conference back over to Jack Taylor for any closing remarks.

Well, thank you very much, operator. And for those of you that have been attending with us, we'd like to thank you for joining our call. And also, I'd like to thank you for your continuing support of our business. Thank you to the team here, helping us navigate through this tough environment and getting ready for the future. And we look forward to speaking with you all soon.

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