Good morning. My name is Diego, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Granite Point Mortgage Trust Fourth Quarter and Full Year 2022 Financial Results Conference Call. [Operator Instructions] Please note, today's call is being recorded. I would now like to turn the call -- over the call to Chris Petta with Investor Relations for Granite Point.

Thank you, and good morning, everyone. Thank you for joining our call to discuss Granite Point's fourth quarter and full year 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 provide a brief recap of market conditions and review of our current business activities. 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 in the Investor Relations section of our website. We expect to file our Form 10-K next week. 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 our risks that could affect results. We do not undertake any obligation to update any forward-looking statements. We will also refer to 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 accordance with GAAP. A reconciliation of those 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 to our fourth quarter and full year 2022 earnings call, and thank you for joining us today. Despite the challenging market backdrop and the Fed's dramatic actions in raising interest rates, we successfully navigated this unstable environment and accomplished many of our objectives over the course of 2022. Earlier in the year, we opportunistically grew our equity base through the $87.5 million add-on preferred equity offering and repaid the remainder of our higher cost term loan borrowings. We refinanced two of our legacy delevered funding vehicles, releasing a substantial amount of capital, further strengthening our liquidity position. During the second half of the year, we closed on two new credit facilities with an aggregate borrowing capacity of up to $300 million, which are designed to fund performing, subperforming and nonperforming loans on a non-mark-to-market basis. These facilities highlight our ability to add to our already diverse funding sources and provide us with more asset management and liquidity flexibility during the current volatile environment. In anticipation of potential macroeconomic challenges and consistent with our conservative approach to managing our business, early in the first half of 2022, we shifted our business objectives from originating new loans and growing our portfolio to preserving our liquidity to further bolster our balance sheet. For example, we further emphasized proactive asset management, working with our borrowers and driving loan repayments through active dialogue well in advance of loan maturities. This contributed to a healthy volume of loan repayments of about $1 billion over the course of the year. These and other actions allowed us to strengthen our balance sheet while also redeeming the $144 million of convertible notes that matured in December with cash on hand without needing to access the funds…

Thank you, Jack, and thank you all for joining our call this morning. During 2022, we funded approximately $565 million of loan balances with an average balance of $38 million. Our reduced origination pace for the year reflected our cautious approach to an uncertain market environment and our goal of increasing liquidity. We ended the quarter with an aggregate committed balance of $3.6 billion, and a principal balance of about $3.4 billion, including $230 million of future funding commitments, which accounts for approximately 6% of our total commitments down from a high of over $750 million in Q1 2020 and reflective of the light transitional nature of our loans. Our portfolio continues to benefit from broad diversification across property types and geographies 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 yield of about 8.4% with a weighted average stabilized LTV at origination of 63%. During the fourth quarter, we funded about $109 million of total principal consisting of approximately $31 million on existing commitments and a $77 million acquisition financing related to the resolution of the Pasadena retail loan. We realized almost $1 billion from repayments and two loan sales during 2022, with about 44% of that being office loans. We believe this healthy pace of repayments is due to there being more liquidity in the middle market compared to the large loan market and validates our strategy of working with our borrowers to allow them time to execute their business plans and sell the property or refinance our loan while incrementally deleveraging our loans and/or enhancing our loan economics or structure. Our repayments continued throughout the year with about $362 million of loan repayments, paydowns and one loan sale in the…

Thank you, Steve. Good morning, everyone, and thank you for joining us today. Yesterday afternoon, we reported a fourth quarter GAAP net loss of $9.9 million or $0.19 per basic share, which includes a provision for credit losses of $16.5 million or $0.32 per share and a loss on a loan sale of $1.7 million or $0.03 per share related to an opportunistic sale of a $22 million mixed-use office and retail loan. Distributable loss for the fourth quarter was $8.2 million or $0.16 per basic share and includes a $15.5 million realized loss related to the resolution of our retail loan in Pasadena, which we previously disclosed. Adjusted for the realized losses, our Q4 distributable earnings were $9 million or $0.17 per basic share. Our fourth quarter book value declined by about $0.38 per common share to $14.86 and was mainly affected by the increase in our CECL reserves. For the full year, we reported GAAP net loss of $55.3 million or $1.04 per basic share which was mainly driven by a provision for credit losses of $69.3 million or $1.32 per basic share and loss on early extinguishment of debt of $18.8 million or $0.36 per basic share related to our repayment of the term loan borrowings earlier in the year. Our full year 2022 distributable earnings were $14.7 million or $0.28 per basic share inclusive of $27.3 million or $0.51 per basic share realized losses related to the resolutions of two nonaccrual loans and the sale of one loan. Adjusted for the realized losses, our full year 2022 distributable earnings were $42 million or $0.79 per basic share. At quarter end, our CECL reserve totaled $86.6 million or $1.65 per common share and represented about 2.4% of our total loan commitments. Our allowance for credit losses includes about $39 million of reserves allocated to the four risk-rated 5 nonaccrual loans. The $16.5 million provision for credit losses in the fourth quarter was mainly driven by more conservative macroeconomic forecasts used in our analysis. Turning to our capitalization and liquidity, our fourth quarter total debt-to-equity ratio decreased to 2.3x from 2.6x at the end of Q3, mainly due to the repayment of our $144 million convertible notes, which matured in December, and continued repayments within our loan portfolio. We ended the quarter with about $133 million in cash after repaying the convertible notes and continue to actively manage our liquidity and emphasize stable funding. During the quarter, we added a new $100 million secured credit facility, providing us with loan level financing on a non-mark-to-market basis and allowing for additional funding flexibility, especially with respect to nonperforming loans, giving us more optionality within our capital structure as we continue to actively manage our balance sheet during this highly uncertain market environment. Thank you again for joining us today. And now, I would like to open the call for questions.

[Operator Instructions]. Our first question comes from Doug Harter with Credit Suisse.

Hoping you could talk about your plans to generate more liquidity to handle the convert that comes due in the fourth quarter?

Sure. Thanks for joining us. Thanks for the question. This is Marcin. Yes. Look, we will remain opportunistic vis-a-vis any potential in our capital markets transactions, obviously, that we did not do that due in the fourth quarter to address the '22 maturities. We do have pretty delevered portfolio. So we're looking at opportunities to potentially refinance some of our funding vehicles, which would provide pretty meaningful capital to help us address the bond. So we may -- again, we'll remain opportunistic. We'll probably run the portfolio off a little bit. But if there's an opportunity to refinance them, we'll evaluate that as well.

Just following up on that comment about the under-levered portfolio. Just looking at Slide 12. I -- can you help us with the non-mark-to-market repurchase facility, the secured credit facility, what type of advance rates could you get on those facilities as we kind of think about the potential for finding liquidity there?

Sure. It really varies by different assets. These facilities, I mean, you can see on this page, it's somewhere between 40% and 50% -- 55% advance rate right now. It really varies on a particular loan. We set these facilities up to really help us with financing of some of the sub-performing and nonperforming loans, which we're very happy with that. It's a great tool to help us manage overall liquidity. We see a lot of opportunity to potentially refinance FL2 with the second CLO, which is below 40% advanced rate right now. So we're looking into that. But again, the portfolio is pretty delevered. So we believe we'll have some opportunities to maybe swap some of the corporate debt for some asset-related debt over time.

Doug, this is Jack Taylor. I would just add one thing. I wouldn't use this an operative assumption that any refinancing of underlevered assets is put on to the $200 million non-mark-to-market repurchase facility or the secured credit facility.

Okay. I guess is that implying that refinancing -- or I guess, what is the appetite or the availability to get new financing facilities, secured financing facilities in the market today?

We're in good position with our existing banks and wouldn't need to reach out to new lenders. So we also have inquiry from new lenders as well.

Our next question comes from Steve Delaney with JMP Securities.

The new 5-rated, I'm sure everyone on the call wants to learn a little more about the new 5-rated office loan in Dallas. I'm not really familiar with that market, but could you just generally describe what submarket, what part of Dallas, it's located in? And maybe some comments about the age of the building, the business plan for the sponsor and with the current occupancy and tenant mix looks like.

Steve, it's Steve Alpart. I'll keep this high level. So this is a small loan secured by an office property in Dallas, as you know. We moved this 1 to a 5 in the fourth quarter. We have had other Dallas office loans that have performed very well. We have another Dallas loan right now, which is nearby and is also performing very well. This one is -- has underperformed. The leasing has been sluggish. General area of Dallas is kind of North Dallas. But we have to get to -- you've heard us talk a little bit about how uneven performance has been across markets, within markets, by buildings. This one just underperformed. So we -- so those are the reasons why we moved to 205. As far as potential outcomes here, it's the usual mix, but we're looking at a potential sale of the property. It could be a deed in lieu. The timing of the resolution is hard to predict. But we're very focused on resolving all the 5-rated assets and increasing run rate earnings.

Understood. It was a 2017 loan. So I assume was it originally like three years and 1 one-year extension. So is it pretty much part of the decision is that they kind of reached the end of their second extension.

Yes, that's a fair assumption. Most of these loans are -- there was a couple of extension options. This one is after maturity. So those are all the factors that went into moving this one to a 5, just the underperformance and the maturity. But look, we're talking to the borrower. The conversations like almost all these deals are very cooperative. We have to just kind of just look at the range of options.

Got it. Jack, a comment in your opening remarks, we've seen -- all seen a lot of cycles over the years. A lot of real estate equity capital on the sidelines. I assume some of that could be considered distressed or rescue capital. I'm sure they're credit funds that play in that. As you see the market and where we are right now, what do we need as a flash point to see some of that money come in? Is it sort of wait and see the Feds in game and we know kind of people do expect terminal rates. And just if you could share some thoughts about over the next year or more, when might there be some capital coming into the commercial real estate market from that type of source?

Well, thank you for the question, and good to speak with you. I think it's an excellent question, and it goes to, I think, a very fundamental point, which is the commercial real estate market is not monolithic. It is composed of many different types of investors with different objectives and needs. So the credit-oriented funds or capital that's been raised or is being raised we'll probably come in when there's more distressed selling and opportunities for them to realize their higher yields or access to the properties through buying notes that will get to the properties very quickly and then they can operate on the properties themselves and hold on for a longer period of time. The bigger issue, I think, is the inflection point. And my view is that the primary driver for so much of the healing in the capital markets and all will be more clarity about when rates are going to stop, being raised and how long they'll be there. And that's a very iterative process. There's been a lot of head fakes in both directions over the last six months. You can look at not only official statements, but prognosticators. I think that the general view is that once the Fed pivots or the market believes they've pivoted there will be a ratchet back up in not only transaction volume but capital moving into the space and leveling off of the [problems]. Most people can't entertain a longer-term hold on a property or an acquisition if they don't know what their liabilities cost. And all liabilities are being driven by that uncertainty right now.

And the equity markets. I mean, the 10-year is 50 basis points higher this morning than it was on February 2. So thank you, February. Appreciate everybody’s comments this morning.

[Operator Instructions] Our next question comes from Stephen Laws with Raymond James.

A couple of things but I wanted to have a follow-up on the new financing facility. Jack, can you talk about the parameters for financing the nonperforming loans, kind of what type of advance rate do you get on that line? And what is the cost of that financing to put that in place on a non-marked 3-year basis?

I'll actually turn it over to Marcin.

Stephen, it's Martin. Good question. So when you look at our Page 12, it's 650 over SOFR. And again, as I mentioned to Doug earlier, the advance rates will sort of differ based on different loans, somewhere between 40% and 60%. But it really is asset-specific as it is with any type of financing on any type of facility. It's all really highly dependent on a particular asset that you're financing at the time.

Our next question comes from Jade Ramani with KBW.

When we look at the leverage of the company, I'm puzzled as to why there is more leverage available. Just looking at many of your peers, quite a lot of them have on the asset level north of 4x leverage. And when I look at GPMT, the leverage really never got to those levels and now is among the lower appears yet it doesn't seem that there's an immediate source of liquidity aside from cash. So what do you think the main reasons are for that if the credit performance is likely to be resilient, given the lower average loan size versus those that play in, say, the $100 million plus range?

Jade, it's Marcin. Thanks for the question. Look, I think when you look at the overall leverage of the company, obviously, there's a lot of factors that go into it, and it's very funding source specific. So if you look at some of our GLO financing, it's sort of at 80% or north of 80% financing, right? So you can get a lot of financing in the CLO market, which all of us have, right? And then as the CLO sort of delever as we have with the second CLO, it's below 40%. So when you have to look at it sort of on a specific source of funds because of the total leverage on the company has obviously a summation of all of those. So we have, as you just sort of say, we have availability to lever up certain assets, and we intend to do so over time. We are maintaining lower leverage right now as due to the uncertainty in the markets, we obviously have the bonds coming due by the end of the year. So we're planning on that. So it's a holistic approach, but we definitely have sources of financing to relever the company. We just have to wait for some markets ability to do that.

And with respect to the existing repurchase facilities that were in place, excluding the new facility, that was added, the $100 million, is there unused capacity that's currently available based on the existing collateral that's on hand to get to like a 75% advance rate?

There is. We chose not to go there yet, but there's opportunities to relever some of those assets. But again, it's asset-specific and it obviously depends on facility and a particular loan. So -- but we are -- as Jack said earlier, we're in good standing with our lenders. And they actually want to do more business with us. So we're obviously taking all that into consideration.

How much capacity do you think there is? I don't have the 10-K, I don't think it's yet. But as of September 30, it was something around $700 million.

Yes, that hasn't really changed that much.

Okay. But you said it's asset-specific. So not all of the $700 million would be available. .

Correct.

Okay. And then the second question would just be about more of a strategic approach to the business. I've seen mortgage REITs trade at these kind of levels relative to book value, and there's lots of reasons for that. One of the reasons is investors are looking forward. So they're applying a discount to forward book value, modeling in CECL reserves, they would expect book value to go down and also perhaps the dividend being above earnings. But in addition to that, it's where the next source of capital comes from to sort of bridge any gap the company has. Is there a chance to change the conversation to perhaps buyback stock or partner with an outside investor to perhaps do some sort of creative financing that might be in combination like preferred and common stock or perhaps a convert of some sort, warrants, perhaps that could really be accretive to shareholders on a book value basis and provide leverageable capital to put the company in a totally different position.

Jade, this is Jack. Nice to speak with you. And so things like stock buyback and other things, we don't comment on that. So I won't go to anything specific or fundamental, but it is part of our thinking about accretive capital raises, whether in the public or private market that could provide more momentum because we do believe we're confident that our trading value at the stock is not reflective of the inherent value of the company. So we will be analyzing these things, are analyzing them and will be proceeding. But we can't comment specifically about it, but of course, we think about our strategic future in terms of accessing more capital.

And do you think that -- go ahead.

Just to add to that just in terms of profitability. We have a lot of capital and sort of earnings, capital trap and earnings drag from these nonaccrual loans, right? So I mean we estimate that the nonaccruals cost us over $4 million in interest income in the fourth quarter. So that's a pretty significant amount. So we are really obviously focused on resolving these. And once we do that, you sort of got a double benefit from releasing some trapped capital, but also turning them to earning assets. So the run rate profitability can improve dramatically once those loans are resolved and that can be then financed in a more efficient way. So it's sort of a combination of the two. And going into the pandemic, we were 3.5x leveraged on a total company basis. So there's definitely an opportunity to relever back up, but we're looking at all the different potential outcomes here.

But I think once those loans are resolved, I mean, there's probably going to be a pipeline of other loans that go through issues I mean considering what's playing out in the office after considering what's playing out in real estate more broadly and the price correction. So I think, hopefully, some kind of capital plan is priority #1 rather than resolving those risk-5 rated loans and thinking that, that will produce earnings and that will get the stock up?

I have a couple of comments about that. One, our CECL reserve process takes into account what we -- our current thoughts are and we can speak to that a little more. But the -- in terms of the pipeline, the market is very, very uncertain. But the extent of the problem loans that you're thinking about, I think, is different than how we view it. And so our -- as I responded to, we are looking at ways to bolster the balance sheet of all sorts, the resolution of the nonaccruals doesn't mean that we're blind to the fact that there might be some more depending on what goes on in the market. We are quite aware of the dynamics in the office market. We think our portfolio is largely misunderstood because of the idea that only bigger is better. And we think that our portfolio is quite resilient as we've said, though, we'll probably encounter problems as borrowers grapple with the rising cost carry and all these things. There will be somebody probably somewhere who will approach us and say, "We need to extend with this another relief" something like that. We're not blind to those type of eventualities but we've categorized them in our risk rankings and in our reserves. And even if we're off by some measure, it's not going to be the type of thing, I think, that you're thinking of.

Okay. And I wasn't pointing to GPMT's portfolio, in particular, but just the environmental overall. But I really appreciate you taking the questions.

And there are no further questions at this time. So I'll hand the floor back to Jack Taylor for closing remarks.

I would like to thank everybody for participating in the call today specifically want to include our team, not only in the C-suite, but throughout the company for all the hard work they're doing to support this company and to move through these challenging markets. It's been superb efforts on everybody's part and a fantastic execution being exhibited. Most importantly, I want to thank our shareholders for continuing to support our company. Thank you very much.

Thank you. And that concludes today's conference for today. All parties may disconnect. Have a good day.