Granite Point Mortgage Trust Inc — Earnings Call Q3 2026

Operator: Good morning. My name is Sherry, and I will be your conference facilitator. At this time, I would like to welcome everyone to Granite Point Mortgage Trust Third Quarter 26 Financial Results Conference Call. All participants will be in a listen only mode after the speakers' remarks, there will be a question and answer period. Please note today's call is being recorded. I would now like to turn the call over to Chris Petta Head of Investor Relations for Granite Point. Please go ahead, sir. Chris Petta: Thank you, and good morning, everyone. Thank you for joining our call to discuss Granite Point's third quarter 26 financial results. With me on the call this morning are Jack Taylor, our President and Chief Executive Officer Stephen Alpart, our Chief Investment Officer and Co-Head of Originations, Blake Johnson, our Chief Financial Officer Peter Morral, our Chief Development Officer and Co-Head of Originations, Ethan Lebowitz, our Chief Operating Officer. After my introductory comments, Jack will provide a brief recap of market conditions and review our current business activities. Steven will discuss our portfolio and Blake will highlight key items from our financial results. The press release, financial tables and earnings supplemental associated with today's call were filed yesterday with the SEC along with our Form 10 Q. And are available in the Investor Relations section of our website. 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 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 the most comparable GAAP measures can be found in our earnings release and supplemental. Which are available on our website. I will now turn the call over to Jack. John A. Taylor: Thank you, Chris, and good morning, everyone. We would like to welcome you and thank you for joining Granite Point's Third Quarter 26 Earnings Call. On September 23, Granite Point announced that our Board had initiated a process to review alternatives to enhance stockholder value. We recognize there may be questions regarding this process. As we noted in our press release, we do not intend to answer questions or disclose any developments with respect to the process until the evaluation of alternatives has been completed or the board determines that earlier disclosure is appropriate. Now let's turn to the third quarter. U.S. Commercial real estate credit continued to benefit from constructive property level fundamentals while facing headwinds from interest rate increases combined with macroeconomic and geopolitical uncertainty. Including the effects of the Iran war. Inflation expectations accelerated in August and concerns surrounding government spending further increased pressure on interest rates. This increase in interest rates combined with market uncertainty regarding the direction of rates has notably slowed property sales and refinancing activity. And negatively impacted asset values. Notwithstanding those pressures on commercial real estate valuations, the overall economy has remained strong. Consumer spending and employment are still at impressive levels, Property cash flows are expected to continue to grow across many sectors. Development costs remain very high and new supply is constrained. All of which are fundamental tailwinds for the commercial real estate sector. In addition, office fundamentals across many markets continue to improve a trend that should be helpful for repayments and resolutions of legacy office loans. The immediate outlook for the commercial real estate debt markets is mixed. Capital continues to be available for commercial real estate. Debt markets remain active. And lending spreads have not widened that materially across most sectors. All more so for larger and stabilized assets. However, the increase in interest rates and pressure on valuations has led in many cases to a reduction in proceeds levels on new loans. Creating a more challenging refinance market. Our credit reserves increased during the quarter, primarily due to the impact of the challenging capital markets environment on active refinancing and sales processes. As well as further price discovery on our lender driven resolutions impacted by the challenging market. While we resolved 2 legacy 5-rated loans, we had 2 new risk rated 5 loans as well as an increase in our other non accrual loans. Stephen and Blake will go into greater detail on these items. We do expect multiple near term resolutions to offset a significant amount of the reserves. Granite Point remains focused on our primary objective for resolving our loans and REO. During the third quarter, we completed 2 resolutions and realized 2 office loan repayments. These actions furthered our goals of reducing higher cost debt. Back to our 2 REO assets, continue to make progress on maximizing value with the goal of exiting these properties opportunistically. During the third quarter, we refinanced our 2 legacy CLOs as well as additional assets on 2 warehouse financing lines into an upsized and extended financing with JPMorgan. Reducing our cost of funds. Blake will provide more detail on these actions shortly. I would now like to turn the call over to Steven to discuss our portfolio activities in more detail. Stephen Alpart: Thank you, Jack and thank you all for joining our third quarter earnings call. We ended the quarter with $1.4 billion in total loan portfolio commitments, inclusive of $1.3 billion in outstanding principal balance and about $41 million of future fundings. Our loan portfolio includes 30-4 investments with an average UPB of about $39 million of September 30, our portfolio weighted average risk rating was 3.3, an increase of 0.1 over the prior quarter. The realized loan portfolio yield for the third quarter was 5.3%, which excluding nonaccrual loans would be 7.3% or 2% higher. We had an active quarter of loan repayments pay downs, resolutions and amortization totaling about $90 million During the third quarter, we had 2 full loan repayments with a combined UPB of about $20 million secured by office properties in California and Ohio. The first office repayment resulted from the sale of the last property a multiproperty pool where we had been previously substantially delevered. The second office repayment was a cash neutral refinancing by a life insurance company. These 2 payoffs are good examples of the trend over time of increasing liquidity in the office sector. Particularly for assets with strong cash flow. We also achieved 2 loan resolutions during the quarter, both via property sales in cooperation with each of the borrowers. These included the $52 million Georgia multifamily loan and the $15 million Connecticut hotel loan. As a result of these 2 transactions, the company realized a write off of approximately $25 million which had been reserved for through a previously recorded $25 million allowance for credit losses as of June 30. In addition, we had about $8 million of future fundings and other investments on loans in our portfolio resulting in a net loan portfolio reduction of about $82 million for the third quarter. We will now provide some color on the risk-rated 5 loans. At September 30, we had 5 such loans with a total UPB of about $260 million. At quarter end, we downgraded 2 loans totaling about $74 million secured by office properties in Atlanta. From risk ratings of 4 to risk ratings of 5. The first is a $46 million loan collateralized by a 446 thousand-square-foot class a office property located in Downtown Atlanta. The property was well leased at origination. However, the recovery in the Downtown Atlanta leasing market continues to be delayed and as a result of a drop in occupancy and a continued sluggish leasing environment, we downgraded this loan during the quarter. We are in discussions with the sponsor and evaluating several potential resolution alternatives. The other Atlanta loan is a $28 million loan collateralized by a 269 thousand-square-foot Class A property in a submarket where we have seen some increased leasing activity. This property, which is institutionally owned, underwent a complete renovation to best in class status in the submarket. Given the high quality of the property, we had expected to see more leasing activity at the property, However, those new leases have not yet materialized. And as a result, we also downgraded this loan. We are in active discussions with the sponsor for a resolution in the near term. Regarding the 3 legacy 5 rated loans, that were downgraded in prior quarters, the Tempe hotel and retail loan and the San Diego office loan are in active sale processes. We expect to resolve the Tempe loan in the near term possibly by year end, and anticipate resolving the San Diego loan in the first half of 27. The last 5 rated loan is the $93 million Minneapolis office loan. As we mentioned last quarter, we continue to work collaboratively with current ownership to take the property back as REO, we anticipate will occur prior to year end. Resolving these remaining 5-rated loans remains a top priority. As of quarter end, we had 8 other loans on nonaccrual status with a combined UPB of $343 million 7 of these 8 were placed on nonaccrual status during the quarter. As we have been driving forward to effectuate resolutions, a key factor of the move to non accrual for a number of these loans was capital market related headwinds impacting active sale or refinancing profit processes. And we took additional reserves accordingly. We expect that while some of these processes may be further delayed, or put on pause, in other cases, could or likely will come back into accrual status, the fourth quarter or early 27 based on a resumption of those processes or a derisking of the loan for example, through a pay down. Notwithstanding market headwinds, we continue we intend to continue executing on our stated objective of thoughtfully exiting from these loans. We are in active dialogue with each of the borrowers regarding timing and alternatives and will provide additional information as the situations progress. Turning to the REO assets. The Miami Beach office property, which is a Class A asset located in a strong market is under contract with a hard deposit. The closing date targeted for year-end 2026. Regarding the suburban Boston property, we continue to have positive leasing momentum and remain actively engaged with our partner and other third parties on several value enhancing repositioning opportunities. We do not intend to restart originations nor provide longer term guidance while the Board evaluation of alternatives is ongoing. As we have shared in prior quarters, our plan is to remain focused on regular repayments of loans resolutions of the 5 rated and other nonaccrual loans, and resolving our REO properties. All of which over time will reduce our higher cost debt and unlock additional capital. I will now turn the call over to Blake Johnson to discuss our financial results. Blake Johnson: Thank you, Stephen. Good morning, everyone. And thank you for joining us today. On October 5, we completed a 1-for-10 reverse stock split And for GAAP and non GAAP measures, we present all per common share amounts in our third quarter filings and today's conference call on an adjusted retroactive basis. Which includes earnings per common share and book value per common share. Turning to our financial results. For the third quarter, we reported a GAAP net loss attributable to common stockholders of $60.3 million or ($12.50) per basic common share. Which includes a provision for credit losses of $45.4 million and an impairment loss on REO of $2.6 million and a distributable loss of $33.7 million or ($6.99) per basic common share. Our book value at September 30 is $44.54 a decline of $12.42 from Q2. Our aggregate CECL reserve at September 30, was about $186 million which is approximately $20 million higher than last quarter. Our specific reserve increased $46 million largely due to 8 loans migrating from the general reserve to the specific reserve. Incremental increases on certain collateral dependent loans, partially offset by $25 million of write-off from the 2 loan resolutions during the quarter. The $26 million decrease in our general reserve was driven by the movement of 8 loans to the specific reserve. 2 full loan repayments and changes in loan attributes partially offset by downgraded economic forecast in our general reserve model. Approximately 95% of our total allowance was allocated to loans with a specific reserve. As of quarter end, we had about $260 million of principal balance on risk-rated 5 loans, with specific CECL reserves of about $119 million representing 45.6% of the unpaid principal balance. We believe we are appropriately reserved and further resolutions should meaningfully reduce our total CECL reserve balance. Turning to liquidity and capitalization. We ended the quarter with about $45 million of unrestricted cash and total leverage of 1.9x. As of a few days ago, carried about $38.8 million in cash. As shown in our earnings supplemental, we extended and upsized the JPMorgan repurchase facility during the third quarter to refinance our legacy CLO assets and our assets financed in repurchase facilities with Morgan Stanley and Citi. Refinancing our assets gave us better terms greater financing flexibility in addition to lowering our weighted average repo cost of funds. From SOFR+2.42% to SOFR+2.13% representing an improvement of 29 basis points or $5 million of interest expense savings per quarter using our quarter end repo balance of $727 million Lastly, as part of the refinance of our CLOs, we incurred approximately $1.7 million of interest expense that compressed our net interest income for the third quarter. Going forward, we expect to recognize lower interest expense as we will have a full quarter of improvement from the refinance reducing our cost of funds lower amortization expense of $900 thousand related to the loan participation sold treated as secured borrowings and lower borrowing balances as we continue paying down our higher cost debt and resolving our remaining non accrual loans and REO. I will now ask the operator to open the line for questions. Operator: Thank you. You. Our first question is from Christopher Muller with Citizens Capital Markets. Please proceed. Chris Muller: Hey guys, thanks for taking the questions. So I guess, is all of the specific reserve related to the 5-rated loans? And if so, how should we think about migration of loans in the 4-rated bucket especially given the volatility in the market these days? Blake Johnson: Good morning, Chris. This is Blake. Thank you for the question. The quick answer is no. We do have other loans outside of that risk rated 5 that are included in our specific reserve. As of quarter end, the total number of the loans in the specific reserve is 13. Then if you look at our earnings supplemental, we quantify the number of the risk-rated 5 is only 5. So we do have, others that are included in our risk-rated 4 bucket. And we do have 1 in our risk-rated 3. Chris Muller: Got it. that is helpful. And then, I guess the preferred dividends are eating up a lot of earnings and that is going to move higher when they flip to floating in January. Blake Johnson: Is there anything that you guys can do to address those? And maybe that falls under the strategic review process, but just curious if there is anything you guys can share related to that? I will take that 1 again. So just a bit of color here. So as of today, you are right. We have roughly around $8.2 million of preferred shares outstanding. So around $2.05 million if you take that against our total liquidation preference with $25 a share. Right now, the dividend pays around the. I think it is a fixed. Excuse me. It is a fixed rate of 7%. It does turn to floating on January 15 when it moves to 3-months SOFR +583 basis points. As of today, the quarterly dividend sits at around $3.6 million per quarter. And then next year, it is going to bump up to around $5.1 million You know, this is 1 thing. That as we said in our prepared remarks, and I am sure you understand, really are not able to provide longer term guidance today. So what we plan to do, if anything, at all with our prefers is something that we are just not sharing. Chris Muller: Got it. Well, I appreciate you guys taking the questions today and we will keep an eye out for the strategic review process to play out. Operator: Question. Thank you. There are no further questions at this time. I would like to turn the conference back over to Jack for closing remarks. John A. Taylor: Thank you, operator, for assisting us today. Want to thank everybody on the team for all the hard work that you have been doing on the payment you see coming through. And the near term resolutions that we have discussed in our prepared remarks and commentary. As well as those we expect to follow. And thank you to our shareholders for your continued support. And everybody, and you for joining us today. We wish you a good day. Thank you. Operator: This will conclude today's conference. You may disconnect at this time, and thank you for your participation.