Good morning. My name is Donna and I will be your conference facilitator. At this time, I would like to welcome everyone to the Granite Point Mortgage Trust's Fourth Quarter and Full Year 2023 Financial Results Conference Call. All participants will be on listen-only mode. After the speakers' remarks, there will be a question-and-answer session. Please note, today's call is being recorded. I would now like to 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 fourth quarter and full year 2023 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 Origination, 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. We expect to file our Form 10-K in the coming weeks. 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 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 for 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 slide 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 fourth quarter and full year 2023 earnings call. 2023 was another challenging year for the commercial real estate industry for both property owners and lenders. Transaction volumes have remained extremely low. High interest rates have continued to increase the cost of capital, pressuring property values across sectors. They have also created a low visibility for market participants about the future cost of capital and so further reduced liquidity in the sector. Heading into 2023 [ph], we communicated our cautious approach to the market while putting more emphasis on maintaining higher liquidity and proactively managing our portfolio to protect our balance sheet and investors' capital. Our team has decades of experience managing various real estate lending businesses through market volatility caused by various economic, credit and interest rate cycles. As such, we firmly believe that during challenging periods like today, emphasizing balance sheet stability, and protecting the downside is the prudent strategy, both to effectively navigate market uncertainty and to position the business for future success and growth opportunities. Even though such steps pressure the company's returns and profitability in the near-term. In mid-2022, with the expectation of continued Federal reserve actions and the resulting impact on commercial real estate fundamentals and valuations, we shifted our strategy from new loan originations to increasing liquidity to further diversifying our funding sources and to proactively managing our portfolio by collaboratively working with our borrowers. We're pleased to report that in using this approach, we have accomplished a number of our goals in navigating the market challenges. We have reduced our leverage to one of the lowest levels in the industry and well below our target range. We realized a significant volume…

Thank you, Jack and thank you all for joining our call this morning. We ended the fourth quarter with total portfolio commitments of $2.9 billion and an outstanding principal balance of about $2.7 billion, with $160 million of future fundings accounting for only about 6% of total commitments. Our portfolio remains well-diversified across regions and property types and include 73 loan investments with an average size of about $37 million. Both of our loans continued to benefit from higher short-term interest rates and deliver an attractive income stream and carry a generally favorable credit profile with a weighted average stabilized LTV at origination of 64%. Our realized portfolio yield for the fourth quarter was about 8.3%, net of the impact of the non-accrual loans, which we estimate to have been about 90 basis points. During the fourth quarter, we funded $15 million of existing loan commitments and upsizes and one new loan for about $49 million related to the previously disclosed resolution of the risk rated 5 San Diego office loan. So far in the first quarter, we have funded about $7 million of existing commitments. During 2023, we realized over $725 million of loan payoffs, including over $255 million in the fourth quarter, consisting of full loan repayments, principal paydowns, and select loan resolutions. About 35% of the repayment volume was related to office properties and about 28% were multifamily assets with the balance allocated primarily between hotel and industrial loans. Despite the broader market challenges, our volume of loan repayments has been relatively healthy, including from office assets as we have benefited from some more liquidity in the middle market and our broad portfolio diversification across primary and secondary markets. Given the market uncertainty, repayments are hard to predict. In the near-term, we anticipate our loan portfolio balance…

Thank you, Steve. Good morning everyone and thank you for joining us today. Yesterday afternoon, we reported a fourth quarter GAAP net loss of $17.1 million or $0.33 per basic share, which includes a provision for credit losses of $21.6 million or $0.42 per basic share, mainly related to certain risk rated 5 loans. Distributable loss for the quarter was $26.4 million or $0.52 per basic share, including a write-off of $33.3 million or $0.65 per basic share related to the resolution of our San Diego office loan we disclosed in December. Distributable earnings before realized losses was $7 million or $0.14 per basic share and reflects the impact of loan repayments and additional loans placed on non-accrual status during the quarter. Our book value at December 31st was $12.91 per common share, a decline of about $0.37 per share or about 2.7% from Q3. The decrease was primarily due to the loan loss provision, the impact of which was partially offset by our accretive repurchases of 1 million common shares during the quarter, which we estimate benefited book value by about $0.16 per share. Our CECL reserve at year end was about $137 million or $2.71 per share. representing about 4.7% of our portfolio commitments as compared to about $149 million or 4.9% of total commitments last quarter. The modest change in our CECL reserve was mainly related to the write-off of the allowance related to the San Diego asset, loan repayments, and slightly better macro assumptions used in estimating the general reserve, partially offset by additional specific allowance recorded on the two new risk rated 5 loans. Two-thirds of our total CECL reserve or about $90 million is allocated to certain individually assessed loans, which implies an estimated loss severity of about 27%. As of year-end, we had…

Thank you. The floor is now open for questions. [Operator Instructions] Today's first question is coming from Steve Delaney of Citizens JMP. Please go ahead.

Good morning. Thanks for taking the question. Steve Alpart, you mentioned in your comments a Boston loan, I believe you indicated it was downgraded to a 5. Was that an event that took place here in the first quarter of 2024? It's not listed on the Page 11 on the 5-rated loans as of year-end.

Hey Steve, good morning. Thanks for joining our call this morning. That loan was downgraded in the fourth quarter from a 3 to a 4, not to a 5, right?

Okay, got it. And that leads me to my next question was kind of like what's left in 4-rated loans given the transition that you had to a couple of 5s in the fourth quarter. I believe it was 7 -- you said the 4s were 7% of the portfolio, which sounds like it could be about couple -- $200 million. How many loans are in that 4 bucket currently?

Sure. There's four loans, Steve, in the 4 bucket as of December.

Okay, great. That's helpful. Thank you very much. Okay. And I guess this is just kind of a general comment, but hearing you talk about your liquidity and retaining cash and Marcin's comments about near-term earnings coming in the dividend. And we model that as well simply because of some assumed losses impacting distributable EPS. Jack, I guess I'll direct this to you. You have been using your buyback, looking at where things stand now, would it not make sense for the Board to consider trimming the dividend the yield now is mid-teens or higher today, trim the dividend and allocate more of that cash capital into buying back the shares down here less than 50% of book. Just curious your thoughts on that suggestion.

Hi Steve, this is Jack, and it's good to speak with you, and thank you for joining us. Sure, I'll answer that. And first, I'll start out by saying it's our policy and our goal to provide an attractive income stream through the dividend to our stockholders. And dividend sustainability and the desire for it to be supported by our expectations for the run rate. Operating profitability is a key in our mind, and that's also with a view of the long-term profitability -- excuse me, I feel a little bit of laryngitis. Given the really uncertain environment and making projections is really pretty difficult and the estimates is very challenging. And we recognize that during this period and other periods of credit challenges, we and others in the industry may under earn the dividend for a period of time, especially as we work on resolving the non-accrual loans, as you pointed out. And so as we mentioned in our prepared remarks, we anticipate that our earnings will be below the current dividend in the near-term. And as we resolve these non-performing assets. And they have, as we pointed out, a meaningful drag on our profitability. Now, we don't anticipate that. We certainly don't anticipate that to be a permanent situation. But we don't know how long that is going to take and how long the resolutions will take. So, management, along with our Board will continue to evaluate the company's dividend in respect to future quarters. And the dividend is, of course, ultimately a decision of the Board. But all these factors we're taking into account, including what you were saying about stock buybacks and our flexible capital strategy allows us, as we have in the past. And we have authorization for it to take advantage of what we consider to be a very deep discount against value in our stock buybacks.

I appreciate that, Jack. Can you say what the remaining buyback authorization was as of the end of 2023?

I believe we have $4 million. Yes, we have $4 million of buyback authorization remaining. I think it's a little bit more, but it's a 4-point something like $4.1 million.

Okay, great. That’s helpful. Okay, well, thanks for the comments.

Thank you.

Thank you. The next question is coming from Stephen Laws of Raymond James. Please go ahead.

Hi, good morning.

Good morning.

A couple of questions around the NPLs. I guess first -- and Steve Alpart, I appreciate the color as you kind of ran through them. Certainly, it seems like you said LA mixed use in the Minneapolis office maybe are going to be longer resolutions. But as you try to bucket the others that you went through, any thoughts on which one could be resolved first half 2024, which ones maybe second half? Or is there a way to somewhat kind of force rank what can be addressed sooner rather than later as you think about those loans?

Sure. Steve, good morning. Thanks for joining our call this morning. Good to talk to you. So, as we said earlier, the LA mixed-use and the Minneapolis office asset, just given what's happening in those two markets, we think that those are probably take a little bit longer than some of the others. The Baton Rouge mixed use, just to come to a quick march here, that borrowers launched a sale process to sell the property. That process is ongoing as we speak. It's difficult in this market to predict timing, but that's when I would say we hope to resolve in the next couple of quarters. The Chicago office deal, which has a retail component as well. We're working with that borrower. They are in negotiations to potentially sell the property. It's early stages. We're hopeful for a resolution. I would probably characterize that one as more intermediate term. Again, the timing is hard to predict. This is an FYI. We have no other office exposure in that market. The Minneapolis hotel loan, that borrower is also conducting a sale process, also ongoing, we'll evaluate next steps with them once they have more feedback, which hopefully is soon. Again, timing is hard to predict, but that one is also ongoing. And then the Phoenix RVO asset, we've talked on some prior quarters that that configuration lays out well for potential conversion to residential. So, there's some optionality, whether it's multifamily, whether it's office, we're actively managing that one right now. We're evaluating next steps that could include a potential sale process. and we'll share more information on that one as it develops.

Great. And then I guess as a follow-up to those, will we see you offer any buyers kind of seller financing or financing all the new assets the way you did with San Diego? Or are there certain assets that we don't want to have exposure to going forward? How do you think about the willingness to provide financing to the ultimate buyer in the sales process?

Sure. So, it's something that we've done in the past. It's something in the toolkit. We can do it where it's necessary -- certainly where it's necessary to facilitate a sale. In this market, particularly for some of these assets on the office lending market obviously is difficult. So, we would probably expect for a lot of these office resolutions that we're probably going to be providing some type of financing that's not necessarily the case. We didn't provide any financing on the Dallas office note sale. So, it's something we can do case-by-case. We've done it. We'll evaluate it case-by-case.

Great. And then lastly, maybe for Marcin. When you think about the NPLs and financing that may be in place on in, can you talk about what the drag on run rate earnings are? Is there some way to quantify that as far as once you get some resolutions and you're able to pay off the associated financing, kind of what the potential benefit is as you look at those assets?

Sure, good morning Stephen. Thank you for joining us. I would say the biggest impact on those assets, and as I said in prepared remarks, it's over $400 million of them as of the end of the year. So, interest income, they're financed sort of in a variety of different ways. But I would say most of the impact -- the positive impact from resolutions would come from potentially turning them into earning assets, as Steve and -- as Steve Alpart just talked about if we decide to provide financing or sort of repaying some of the expense of debt, but it's pretty meaningful. I mean the -- as you heard us say, they sort of accounted for about 90 basis points of yield from an interest income perspective. So, that's pretty meaningful. So, it's sort of hard to quantify depending on which resolution happens on which loan, but it's in double-digits in earnings per share per quarter, for sure.

Yes, that’s the math I was getting to too. I appreciate the color on that. Thanks for your comments this morning.

Thank you.

Thank you, Steve.

Thank you. The next question is coming from Doug Harter of UBS. Please go ahead.

Thanks. Can you talk about your upcoming 2024 maturities just in the context of helping us get comfortable that you have -- in the current risk ratings have your arms around potential new problems?

Hey Doug, good morning it's Steve. thanks for joining the call. So, as we look out into 2024, 2025, I think we have a pretty good handle. Some of these loans will pay off in the normal course. You saw last year in 2023, 2022. We've had pretty good repayment pace on these loans. So, some of these loans will continue to just pay off in the normal course. Some of them will extend at -- some of them won't qualify for an extension, some of them may be coming up on a final maturity. I think that's a question you're getting at. We have a playbook for working for resolving those. In general, if something is coming up and we've got a good borrower, doing all the right things, and they're financially committed to the asset. We'll come up with a plan to potentially give more time to get loan pay downs, to get debt service reserves replenished to try and create some kind of a win-win situation. And what I just described will handle the bulk of it. And then there will be a smaller cohort of loans, the 5s, for example, where we have to kind of take a different approach. And that may be a note sale could be a property sale. It can be working with our borrowers to sell the property. Going to the earlier question, case-by-case, we can provide sell financing. So it's kind of a range of outcomes or range of tools that we have. We're obviously very focused on this. The tone with our borrowers for the majority of our assets very positive. People are still putting money into these deals. But look, it's -- we recognize the environment is challenging for a lot of these loans, particularly office loans. And that's why you've seen us increase our CECL reserve, which I think are about doubled since Q4 2022. It's something we're very focused on.

Great. And then kind of in the -- how are you thinking about your current liquidity how much of that -- with no corporate debt maturities, how much of that liquidity could be used for buyback versus how much do you need to save for potential defensive portfolio actions?

Hey Doug, this is Jack. Good to speak with you. Thank you for joining us. Well, we've been maintaining a focus on keeping an elevated level of liquidity. And even during that period of time, we have deployed some into purchasing our shares. And so we don't predict when we might and went, but we have the ability to do so. and we'll remain opportunistic with respect to that. We've had tremendous success so far with providing ourselves more financial liquidity in our asset management of our loan portfolio addressing potential credit events. And we're going to -- as we've said in our prepared remarks, we're going to maintain that position. We -- in prior calls, we've stated that our general goal is to maintain about 10% to 15% of our capital base in cash. Now that obviously varies quarter-to-quarter. And we're currently north of that. But given market dynamics, we believe it's prudent to keep it elevated but we'll remain opportunistic with respect to managing our balance sheet. And if there are opportunities to further improve our capitalization, we'll consider them like we've done in the past. if there's opportunities to deploy the capital in accretive ways, we'll do that as well.

Great. Thank you, Jack.

Thank you. The next question is coming from Jade Rahmani of KBW. Please go ahead.

Since we won't have the 10-K for some time, could you please provide the balance of non-performing loans and non-accrual loans? I guess, the 10-Q had total loans past due as of September 30th of $231.8 million and non-accrual loans of $165.9 million. So just looking for an update on those two numbers.

Sure, good morning Jade. Thank you for joining us. Thank you for the question. As I mentioned in my prepared remarks, given sort of the downgrades that we had -- at the end of the year, we had about $450 million of loans that are non-accrual status.

And do you have the non-performing loans, the total past due?

That's pretty much the same number.

Okay. Has there been any change so far this year in terms of credit?

Hey Jade, let me ask you if you could clarify, are you saying over the past 12 months or since the beginning of Jan 1?

Since Jan 1.

Yes. Well, we've had -- there's no update to the risk rankings or report that we just gave. I would say that we are -- we're observing a couple of things in the market and from our borrowers there is some increase -- so there's nothing official to report as a post Jan 1 event. But what I would say is that we have -- a subset of the borrowers are watching the Fed even more closely in terms of the calibration of how much more money to put in for how long, there's just general fatigue throughout the market we believe, including some of our borrowers. We've -- continue -- and Steve Alpart can talk to this in the multifamily sector. We know that there's increasing concern in general about the multifamily sector in the market, we're still seeing a pretty good response from our borrowers and performance of our properties. And given our locations and our sponsors, we're not troubled by that portfolio. But that's what I would answer your question.

Okay, that's good to hear. Steve, did you want to provide any additional color on that question or perhaps multifamily?

Sure. No, I guess on the multifamily, Jade, we talked about this on our call last quarter. I'm commenting on specifically on the multifamily. It's still generally stable and healthy in the markets that we're in. including in the Sunbelt, which is I think where there's a lot of concern about heightened new supply, which we obviously see. We have assets in places like the Carolinas. They're doing fine, Savannah doing well, Birmingham, very little new supply. So, the supply even of the Sunbelt is not uniform. We are watching some of the markets in Texas. We've seen, and you've heard on some of the other calls about over building in Austin. We're not in Austin. We definitely have seen rent growth slow, but our business plans aren't primarily based on rent growth. Our business plans are usually based on doing a value-add renovation, looking to get rent bumps. We still are seeing that borrowers are getting rent bumps. It may not be exactly what was underwritten, but we think that if you turn the rent roll one or two times, they're likely to get there. Would not be surprised to see some multifamily assets fall a little bit behind plan. But what we're seeing so far is that we just think it will just maybe take an extra year or two. And we didn't do a ton of loans at the peak. We did some. We didn't do a ton. And the loans that we were doing, call it, second half of 2021 or early 2022, we were increasing our kind of exit debt yield. So, the leverage was probably down 5 or 10 points. The borrowers have a good amount of equity to protect. So, I think the general trend on multifamily is stable and positive. But we are seeing the headlines and we are all watching it very carefully.

Thanks very much. Since their older originations, could you give an update on the Illinois multifamily origination data is 12/19 and also New York mixed use since it's quite a large loan, $96 million. Origination is 12/18. Are those risk-rated 3 loans? Is there any reserve against those? And what's going on with those plans? Should we expect any potential loss on those two?

Yes, they're both risk ranked 3. The first thing you mentioned was the Illinois multifamily was -- is actually 2? Is it one in particular you're looking at?

Yes, last quarter, it was about $109 million carrying value.

Got it. Okay, right. Got that one. No real specific update on that one. That one is doing fine. It's kind of, I would say, directionally on plan. The New York mixed-use one, that one is office with ground floor retail. The retail is largely leased. The business plan really revolves around leasing up the office space. The sponsors put in more capital to support the asset. It's currently ranked 4, leasing -- it's really about at this point about leasing up the office space.

Is there a reserve against that? Because this is a really old origination. So I mean, if the office is still trying to lease up, what are the risks that there's going to be an impairment on this? And what's the reserve held against it at this point?

Yes, this loan, obviously, as a reserve on it, it's part of our general pool being risk rated 4. I think it's safe to assume that it has higher reserve than some of the other assets that are in the pool. It is a loan that we are obviously watching closely given sort of the New York and what's going on here. And it's hard to predict about what may or may not happen here, but it is definitely given that it's a 4-rated loan. It's obviously on our "watch list", and we're watching it closely, and we'll see what happens there.

Okay. Thanks. And then the general reserve, I can't think of any others. I may be wrong, though, but I can't think of any others that have taken the general reserves down by the magnitude that you all have. And I know there's management discretion. The macroeconomic variables are unemployment and interest rates. Clearly, those improved in the fourth quarter. Interest rates are up this year. But management has discretion there. So, why take down the [Technical Difficulty] headwinds still in the market?

Thanks for the question. It's a function of movement in the portfolio. Obviously, as there are some downgrades from 4 to 5 and some of the 4-rated loans may have some higher reserves, like I said earlier than the rest of the pool as they sort of migrate, right? That reserve sort of migrates from the general to specific. So, that's part of it. Repayments is another part and sort of the general movement within the portfolio. So, we remain cautious, right? Our general pool is still close to 2%. But as the portfolio sort of shifts and continues to sort of run off a little bit and you have some of these downgrades, I think you will -- you have -- we have seen to a varying degree sort of across the peer group where sort of you have that migration between the general and the specific pool in January, and that's what you would expect as sort of the cycle continues?

Okay, that's good color. That makes sense because the specific reserves did increase, and then there were repayments. So, probably movement out of the general into the specific and then movement -- decline in the general due to loans that paid off.

Correct.

All right. Thanks for taking the questions.

Thank you.

Thank you. At this time, I'd like to turn the floor back over to Mr. Taylor for closing comments.

Thank you, operator and thank you everybody for joining our call. And as I always would -- I want to make sure I do -- I want to thank our investors for their support and our team for their hard work and we look forward to speaking with you again next quarter. Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines of or log-off the webcast at this time and enjoy the rest of your day.