Good morning. My name is Darrel and I will be your conference facilitator. At this time, I would like to welcome everyone to the Granite Point Mortgage Trust Second Quarter 2024 Financial Results Conference Call. [Operator Instructions]. Please note, today’s call is being recorded. I would now like to turn the call over 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 second quarter 2024 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 our current business activities. Steve Alpart will discuss our portfolio, and Marcin will highlight key items from our financial results and capitalization. The press release, financial tables, and earnings supplemental associated with today’s call were filed yesterday with the SEC and are available in 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 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 certain non-GAAP measures on this call. This information is not intended to be considered in isolation or as a substitute to the financial information presented in accordance with GAAP. A reconciliation of these non-GAAP financial measures to most comparable GAAP measures can be found in our earnings release and slides, which are available on our website. I will now turn the call over to Jack.

Thank you, Chris, and good morning, everyone. We would like to welcome you and thank you for joining us for Granite Point’s second quarter 2024 earnings call. The first half of 2024 has been characterized by macroeconomic uncertainty, including volatility and uncertainty about the path of interest rates, which in turn has continued to impact transaction activity in the commercial real estate market. More recently, however, consensus has been building about the potential for the Fed to begin reducing short term rates in the coming months, which was bolstered by the Fed meeting last week and solidified even further by the weak employment report in the market reaction. This shift in rate expectations over the last few months has led to improving confidence in the real estate market and a market pickup in transaction activity though remains well below historical levels. Securitization funding markets for stabilized properties have seen increased activity this year, while liquidity for transitional assets is slowly returning. As transaction flows continue to improve, we're seeing some more market transparency around property valuations. We believe that the move away from the sharply negative sentiment in the market that occurred in March April, following the substantial rise in interest rates at the end of first quarter, will continue to improve the overall level of real estate transaction activity, while property valuations continue their bottoming process. These trends are beginning to play out in our portfolio with recent resolutions of assets and more on the horizon in the coming months quarters, as well as a step up in anticipated loan repayments. Our proactive approach to asset management has resulted in meaningful progress and that we resolved 4 non-accrual loans over the last couple of months with an aggregate principal balance of over $135 million each involving a different strategy…

Thank you, Jack, and thank you all for joining our call this morning. Since our last call, we've seen some increased transaction activity and improved liquidity and are beginning to see capital slowly returning to transitional assets. Improved market sentiment has contributed to better visibility on certain loan repayments and progress on non-accrual resolutions. During the second quarter, we realized about $56 million of net repayments and paydowns, while resolving two non-accrual loans totaling about $47 million in UPB. Since quarter end, we've realized an additional $143 million of repayments, including a $54 million office loan from a fixed rate CMBS refinancing and I've resolved two additional non-accrual loans with an aggregate UPB of about $88 million. We've used a number of different strategies to resolve assets, while balancing multiple objectives to achieve the best economic outcomes. The $12 million loan secured by the multifamily property located in Milwaukee was repaid during the second quarter a small loss and around our carrying value. We worked collaboratively with the borrower over several quarters to effectuate a successful sale of the property without having to provide seller financing to the buyer. Also during the second quarter, we acquired title to an office property located in suburban Boston, which had previously secured $36 million senior loan. The asset was transferred to REO at the loans carrying value and the property is generating positive cash flow. We believe there is embedded value in the property with attractive optionality for alternative uses for the parts of the building and development opportunity related to excess land. Since quarter end, we have resolved two additional loans totaling $88 million. The first was the $37 million non-accrual loan secured by a mixed use office and retail property located in Downtown Los Angeles. This transaction also involved our coordination…

Thank you, Steve. Good morning, everyone, and thank you for joining us today. Yesterday afternoon, we reported a second quarter GAAP net loss of $66.7 million or $1.31 per basic share, which includes a provision for credit losses of $60.8 million or $1.19 per basic share, mainly related to certain risk rated five loans. Distributable loss for the quarter was $9.1 million or $0.18 per basic share reflecting loan write offs of $6.6 million or $0.13 per basic share and a decline in net interest income mainly driven by non-accrual loans. Our book value at June 30 was $9.84 per common share, a decline of about $1.30 per share from Q1, which was primarily due to loan loss provision mentioned earlier partially offset by the accretive share buybacks we opportunistically executed during the quarter which we estimate benefited book value by about $0.05 per common share. The two small write offs this quarter were related to the resolution of our multifamily loan in Milwaukee and a modification of our loan secured by a design building in New York, which created a small mezzanine note we deemed uncollectible. For more details on this modification, please refer to our Form 10-Q. Given our outlook on the potential near-term non-accrual resolutions Jack discussed earlier, we anticipate incurring over $100 million, of write offs over the next couple of quarters, which should reduce our overall CECL reserve balance. Our operating results continue to be pressured by the non-accrual loans, which accounted for over 20% of our portfolio as of quarter end. Some of these loans are on cost recovery and any incoming interest is applied to reduced loan principal rather than being recognized in earnings. We anticipate the run rate profitability of the company to improve in the coming quarters as we continue to…

Thank you. [Operator Instructions]. Our first question has come from the line of Steve DeLaney with Citizens JMP. Please proceed with your question.

Hello, everyone, and thank you for taking the question. I guess, you're clearly, obviously, you're in a defensive mode and that we certainly understand that and appreciate that. The loan portfolio is in runoff, whether it's repayments, which I think you probably welcome right now or moving loans into REO and then trying to dispose of that, but $2.6 billion I believe, Marcin, at the end of June, as you guys look out the second half of the year, any sense and I realize I'm asking you for a rough estimate, where might the loan portfolio bottom out? As I'm trying to sense, I'm thinking that maybe distributable EPS, we'd love to see that turn around and be breakeven or positive, but it feels like that's going to be hard to do with a shrinking loan portfolio. Just would welcome any of your comments on that particular topic. Thank you.

Good morning, Steve. Thank you for the question. Look, I think it's difficult to sort of predict exactly where things are going to be. I think as you mentioned, we are sort of maintaining our conservative stance as we sort of resolve these assets and manage REO. I think Steve Alpart mentioned in his prepared remarks that we anticipate portfolio to sort of trend down by the end of the year. I think some of the resolutions will have a positive impact on run rate profitability. I think in the near term, I think distributive EPS sort of run rate ex-losses will probably trail the dividend a little bit, but as these resolutions happen in whatever shape or form they may happen, whether it's REO that's cash flow positive or we provide seller financing on to a new ownership group or pay down expensive debt, that should improve run rate profitability in the coming quarters and hopefully that's -- it's again, it's sort of hard to predict as to where that's going to shake out and when, but we feel pretty good about the overall trajectory.

Okay. And do I have the math right here? It seems that you've got about maybe it was a comment that Jack made, but I wrote down $100 million of realized losses over the next period, whether that was the next year or whatever, 51 million shares, $2 of hit to distributable EPS from your current expected losses in your loans that you're carrying at five rated or whatever. Does that Marcin, does that range of something in the neighborhood of a $2 share impact to the over loss realizations? Does that job with where you see your portfolio and your reserves?

Yes, I think that's right. I think I said anticipate over $100 million in the coming quarters. We have the two resolutions in Q3 already. We are fully reserved on the B Note on that Pittsburgh asset, which we anticipate may get written off as well. So between that and the LA office retail, that's somewhere around $40 million already, and I think as you heard, Jack and Steve mentioned, the additional visibility will likely add to that. So depending on timing and when these deals can close, it could be north of $100 million by the end of the year but exactly, whether it's Q3 or Q4, it's sort of hard to predict but I think you're roughly in the neighborhood.

Got it. Well, I think you guys are working through it and doing best you can. In the meantime, appreciate the effort towards helping shareholders out a little bit with the stock buyback. I think that's a nice balance to your asset resolution efforts internally. So thanks for your comments.

Thank you. Appreciate it.

Thank you. Our next question has come from the line of Douglas Harter with UBS. Please proceed with your questions.

Thanks. I believe in the prepared remarks you said you're seeing greater transparency around property pricing. Could you just talk about your comfort in being able to resolve your loans at or near the marks kind of given that improving transparency on price?

Sure. Good morning, Doug. Thank you for joining us. Thanks for your question. Look, I think we feel pretty good as we sort of go through the process and there's more visibility and more transparency. We obviously try to be proactive with respect to some of these reserves as some of these assets go through the process. I think generally we're not no one in this market is going to be 100% correct on these marks, but we feel pretty good about where we are sort of in the near term for some of the assets that we have in the pipeline to hopefully resolve by the end of the year.

Great and then, Jack, I know you said that there still could be kind of one off new problem assets. Can you just help us get comfort in the fact that kind of the current risk ratings kind of have your arms around the problems and as we look to kind of see the pace of new problem asset formation flow?

Yes. Thank you, Doug, and thanks for joining us. We are comfortable with the current risk ratings and in fact, I would say we've been on forward foot in terms of moving things from a four to a five and we're looking at the overall environment that makes us still be circumspect about what's to come. We think things are improving. We think that the market and our own portfolio is towards the end of this stress period and we're emerging into greater liquidity in the market as well as greater price transparency because the transaction volume is picking up. That's not to say that we won't have some additional loans that move into the four category or down to a five category, but I will say with respect to the fours, those are some that we expect that we'll see a full payoff for some of them and we may see some migrate to five as we did with the Denver office loan and we are not sure about the direction for some of them, but it looks like they're progressing in a way that we're comfortable maintaining with a four at this time. I don't know if that's responsive to you. I hope it is.

It is. Thank you, Jack.

Our next questions come from the line of Stephen Laws with Raymond James. Please proceed with your questions.

Hi, good morning. I wanted to follow-up on a couple of Steve DeLaney's questions. First, as you think about the non-accrual loans, I think you mentioned $15 million and $0.30 drag. I was curious how much financing do you currently have on those loans and what would the rate be on that cost of debt?

Good morning, Stephen. Thanks for joining us. Thank you for your question. So it really depends on which asset it is. They are mainly financed through a variety of different sources. We obviously have the NPL line that you can see in our filings that we have been utilizing that's sort of $650 million over SOFR. So obviously that's expensive, but it's a good liquidity tool for us. Some of the other assets are on different facilities. So they're generally financed to varying degrees, while the REO is currently unlevered. But as I said earlier, we will we intend to finance them as well just to increase liquidity and give us some more flexibility going forward.

And so when we think about use of liquidity or proceeds as these resolutions occur, is it fair to say that that's probably where you get the biggest bang for your buck is paying down the financing on those non-accrual facilities and that's what's going to drive any near term improvements in profitability?

I think it's either that or if the collateral property on a gets sold, so that then we would sort of pay off the financing or if we provide financing the new ownership group, which we've done in the past, it'll most likely be from sort of interest income on the new asset and that way we may choose to finance it more efficiently. So it's going to be a variety of different tools depending on which direction some of these assets go.

Great. I'm still lucky you can see my notes because that's my next question is, how are you thinking about providing financing on the loans? I think if I heard correctly, the two resolutions that took place in Q2, you did not provide financing to the buyers of those assets. So curious kind of how do you guys make that decision? Are there certain assets that you're more likely to stay attached to, other assets maybe that you don't want to lend against going forward? How do you guys make that decision and how much more difficult is it to do a resolution when you're not willing to provide financing to the buyer?

Hey, Steve. Good morning. It's Steve Alpart. Thanks for joining. I'll take that one. It really depends on the specific asset. As you heard on the call this morning, some of these have resolved without staple financing and some of them will need to resolve with staple financing. It will always be asset by asset decision, but for the office assets, it will be very typical that we would consider or need to provide stable financing. Now that won't always be the case. We talked about the L.A. mixed use office and retail asset and that was an all cash buyer, no staple financing, but with the other cases where we may need to provide staple financing. So it will always be case-by-case but in general it would say it'll be more likely on some of the office assets.

Great. Appreciate the comments this morning. Thank you.

Our next questions come from the line of Jade Rahmani with KB. Please proceed with your questions.

Thank you. The non-accruals in the 10-Q show up as $453 million while the collateral dependent loans are $545 million. Do you happen to know what the difference is?

I think that may be carrying value under non-accruals ex the reserves aid. I think that's the difference. The balance of the non-accruals is about $660 million as I mentioned in my prepared remarks.

Okay. Thanks a lot. That makes sense. I guess just the realized losses that you identified, is the preponderance of those already reflected in book value? Could you give a sense as to where you expect book value to trough?

Yes, that's a good question. The numbers that we cited are reserved for already. So the realized losses, we feel pretty good about those reserves. Again, there may be some adjustments, some minor adjustments as these loans sort of get to the finish line. I think it's hard to sort of predict where book value might be sort of generally in this type of market. If you recall, Jack mentioned there may be some additional credit migration. I think we generally feel pretty good about where we are. I don't think this cycle is over, but I think we are encouraged by slower pace of credit migration and as we said in the prepared remarks, we feel like the balance of the CECL reserve should trend down from here, but again, there may be some one offs here and there going forward. It's hard to predict.

Thank you very much.

There are no further questions at this time. I'd now like to hand the call back over to Jack Taylor for any closing comments.

Well, thank you everybody for participating in our call. We want to thank you for your continued support and as I would be quick to say and also to the team for all the hard work that they're doing through this challenging period where we're making very good progress and have some more wood to shop and we're confident that we'll get there. Thank you, everybody.

Thank you. This does conclude today's teleconference. [Operator Closing Remarks].