GPMT - Earnings call transcript Q2 2022 | Granite Point Mortgage Trust Inc.

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Operator

Good morning. My name is Chuck and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Point Mortgage Trust Second Quarter 2022 Financial Results Conference Call. All participants will be on a listen-only mode. After the speakers’ remarks, there will be a question-and-answer period. is call I over call to now today’s the turn to note, being would recorded like Please Mr. Chris Granite Petta Point. for with Investor Relations sir. Please ahead, go

Chris Petta

and Thank of portfolio. the Taylor, Results. conditions. our With are joining discuss on you financial from market Marcin of the the key Granite our you, our Urbaszek, Co-head morning Officer Investment Originations; Financial activities Officer; our Chief everyone. items the Chief tables supporting Co-Head Originations; our will and Alpart Development me were Peter our that statements, during our the and Marcin with SEC call Relations current call financial today's Officer company's highlight filed Second to recap call results. release After outside Jack are Chief this Plust, Jack Form Steve this and Officer; Point's Financial Steve our and remarks to discuss our Steve President yesterday associated and may of control. a Morral, and Press Investor include and Officer. in will brief available you introductory for of of uncertain and like XXXX Chief business Quarter would website Operating will provide call which morning, slides Alpart, our good our Chief forward-looking remind section of Thank I Executive management XX-Q. with and are comments, along review with

from do for could the of see filings any that events any of affect Forward-looking differ cause forward-looking subject to update results to undertake Please statements are statements. risks results. uncertainties our and materially could future SEC actual some a obligation We regarding the views that not to with discussion reflect our expectations.

GAAP. accordance of can certain which to financial our be substitute intended most comparable presented measures in to the or I reconciliation also measures and on is measures in will to refer slides, considered available information over these a for are A This our call. turn to GAAP in the website. with found call release now information Jack. We this be on isolation financial non-GAAP non-GAAP earnings will not as

Jack Taylor

you, and welcome to morning you would Thank to XXXX We second everyone. quarter call. good Chris. earnings like our all

opportunities, of industrial the investment refinanced in by Over our portfolio investors half first two in of well significant and and cycles $XXX In funding real challenging flexibility. over performing commercial institutional seen during business. the volatility balance. driven sectors. loan progress also values. aspects of on improved vehicles exceeded rate repayments, two earnings increase which over last months, mainly views macroeconomic the rapid and estate markets volume real few has by been estate one prior economic today property those reduced uncertainty. despite that elevated interest viewed favorably and with general, capital the is of in transaction uncertainty periods We've We're impacted market volatility, the our first growth rates periods sheet globally and modest of have conditions. US and We in over XXXX, in fundings $XXX portfolio legacy several the been attractive capital the term multifamily million deploying million Through in high-cost made inefficient greater we mainly quarters repaid borrowings, into balance of resulting XXXX, run resulting our of We've loan on

deterioration any new forward data the policy clarity Fed's should quarters. additional origination the volatility, loan macroeconomic developments market while and Given loan reduced coming coming markets we monetary building on stabilize own over We the may likely additional the the credit trends portfolio. our third believe liquidity unforeseen over the of substantially as levels path on markets further in have and activities for provide uncertain quarter, or our our focusing the in months,

lending intend availability we measured capital environment, maintain and Our rest overall approach. as our the over year the market on the to depend of largely will activity

Given for credit the and risk-rating landscape uncertain during our losses loans one downgraded the we of a office reserve macroeconomic our and to trends, second increased of quarter, broader X. market

actively loans. approach over including office the we million and $XXX to the hard $XXX predict. loans, continue of precise we overall the to balance over funded timing work projections, repayments conditions. million resolutions capital of loan types, repayments. year, that Though We year. Due risk-rated the $XX The on should believe two remainder year-to-date may measured market it and anticipate million resolve and uncertainty, totaled current various end, market property million about our portfolio decline of our deployment the the quarter Since expectations, difficult across of realized is exact be of $XXX to though have of we to modestly over which given our in the balances before in five end remains to approximately given our spread been repayment

the meaningfully borrowings. open Our is over benchmark $XX charge the per our on profitability, accomplishments market first share, by portfolio repayment the over and and sheet, value meaningfully quarter balance have about sheet of common rate interest loan stock, our during Repayment position, stock remain given going second million to which the the increases earnings additional rates. The leverage our current valuation repurchased is, the short-term offset the positively rate run rates the quarter We and provided short-term our balance rates improved to book term floors helped of accretively in of run of prudently totaling the the approach, liquidity focused above Consistent quarter second level term driving loans high-cost value. we shares all of X.X the our interest our both in closing business, offset to in benefited related earnings helped over million, this our now with of rising by the loan low borrowings and current discounted our forward. short-term rate improving impact correlated between benchmark in book managing, our of shareholder $X.XX of and benefited second our value flexibility. year our sides price, additional half and gap the

We time. rationalizing stability position capitalization has delivered more of operating will senior rate led run funding unprecedented earnings, remain overall attractive as growth, well-diversified supporting performance Despite generating over our better our dividend. an resilient markets our to for regain and loans, and us good interest business opportunistic in further volatility, future rate portfolio market and solid by

multiple long uncertainty macroeconomic team navigated seasoned their economic, Our credit including has and periods interest careers, of cycles, over successfully rate and volatility.

I been detail. protecting now strategy, our capital it stockholders in total underwriting, tenet has attractive portfolio risk we of to like our would risk-adjusted more investors' Alpart, returns a and call turn key activities the Our conservative approach over credit to Steve our to and believe to our over deliver management discuss to time. will

Steve Alpart

for and you, morning. commitments $XXX meet you closed all joining call of thank million criteria. return capital five the continue and initial high-quality our we loans $XXX new In our Thank second that quarter, and in million fundings. Jack, loans deploy about We over credit this into to totaling

by assets, +X.XX%, profiles. Over newly on for LTV a the XX% existing also with over focus secured risk-adjusted a SOFR attractive fundings multifamily year with commitments, million. The to originated consistent originations return theme weighted future total were loans to quarter characteristics, our yield $XXX over of We $XX our this QX carry more weighted approximately bringing XX%. on funded favorable with of average defensive average of credit and property types, million stabilized

with which transaction second about loan paydowns, repayments moderated million totaled repayments in quarter, overall market broader pace resulted and has fundings the estate growth. the the $XXX Our Consistent of were along portfolio in real activity. with trends, in by loan and outpaced slowdown our modest

quarter $XXX Our of million committed aggregate $X.X future an with the of commitments. including second balance ended portfolio funding billion,

million. Our loan across and XXX property investments portfolio size approximately is with average diversified well of $XX types, includes and geographies an

Our an a profile, income LTV XX%. with about weighted attractive average realized generating favorable a loans stabilized continue a of of deliver overall X%, credit stream, yield to with

new unchanged rating originations rating mainly which prior June average overall XX, loan weighted our was select offset of X.X, As driven which the downgrades, conditions. portfolio quarter, from risk market as by was were

of securing on During loan $X.X loan reserve. and $XX driven property San loans in we loss, a impact a our put for expectations five, market the potential the risk of has leasing established The one ranking given our soft a million of moved status the collateral million office a non-accrual Diego ongoing quarter, this by been credit pandemic. negatively by impacted to the

property four collateralized being loan, added quarter, office list an watch Minneapolis by by the in we this property due This market. to leasing in slow office to negatively our previously impacted a rated also

variety a these We as alternatives. are discussions both evaluate in of borrowers active of resolution with we

loan expect retail also resolving the continuing a occur of which to year. on Pasadena end by are the path to We the we

significantly difficult timing have it the from Given to which uncertain resolutions. of these shifted last conditions quarter, predict exact market the is

specific Now our portfolio cases, quality remains overall have credit portfolio and of well-diversified the within these over of XXX stable. a we investments

available on Given until the will remain transaction overall is and loan slowdown values, liquidity. new in there pressure to market property approach overall on real in and more uncertainty, volume we conditions estate measured the market our clarity originations

funded the we $XXX over in quarter, realized in $XX of have far balances million approximately and third million repayments. So loan

sectors. spread over of and loans about across repayments in year-to-date include remainder million property types, the million multifamily $XXX various across office Our other $XXX with hotels,

market has conditions. pace than usual repayment slower overall and impacted by Our been

a However, continued financial which successfully review for underwriting our over refinancings of challenging underscores to turn have property conservative the our credit overall of sales, these market portfolio quality and call as borrowers our during will conditions more the through loans even now our to repay results. a our Marcin detailed I whole. and

Marcin Urbaszek

second morning, million loss we you $X.XX QX. as in million quarter GAAP to or net us per basic share Good or everyone per thank reported basic net a joining $X income today. of $X.XX share Yesterday Steve. you, for afternoon, compared $XX.X GAAP and of Thank

of and a credit about Distributable provision senior per $X.XX the QX, early term basic and loss basic share second to or of the share per which basic repayment debt of losses GAAP extinguishment. million $X.XX share were financing which the provision quarter results secured loan expense $X.XX was for and related facilities. a excludes for debt extinguishment Our include term disclosed previously of charge on about per $XX.X the earnings on

value backdrop, have our portfolio value industry high-cost $X.XX benefited repaying few conservative last at quarters per points some meaningful associated and two common risk-weighted reserve over specific $XX the returns macroeconomic million the million In CECL a which strategy. the with establishing share. a $XX.X shareholder loans. quarter five shares about economic remain with increased dividend forecast XX, about helped X.X XXX by that reflects reserve last and estimate terminal the offset repurchases on more book about commitments. discussed value book which GAAP basis Book share impacts an of implementing by from second our the during our Consistent were results share and our June value by our as we total and is the total Steve borrowings. allocated of well or to accretive earlier. over book as Our In on analysis, X.X total, mainly reserve million CECL million was loan in the per down we driven We given discount of partially repurchasing improving the our market have which the increase over The focused with office trends, repurchased quarter. $XX.XX over benefited offset share consistent per $XX.XX shares is quarter common was time meaningfully to

Turning to interest rate positioning.

to on short-term given speed discussed floors calls relatively increase, we at on benchmark rates was higher correlated mainly the loans. becoming the LIBOR dependent would higher rates in our positively As prior which

of rates higher XX% benchmark about loans. were our XX, June flows of the than on As rate

ask current Thank respect the X.Xx total us our the With debt-to-equity I for the cash of the rate you and increased we Given currently XXX% interest June end to joining of and quarter interest at increase correlated unrestricted all our recent operator above level to $XXX rates ratio March. for portfolio questions. will leverage, liquidity to to is million and floors call so ended benchmark at open the additional from of is of about today with again our XX now X.Xx modestly increases.

Operator

Harter Doug [Operator Please Instructions] go ahead. from Credit And come Suisse. the first question will with

Doug Harter

Thanks.

light Can talk made view current share you continued You the how that those would in about loan light to of views? comments in volume repurchase origination environment. slow you you expect of

John Taylor

one Well, stated liquidity Doug, generating it Thank this take policy our And is do with returns. what focused as Taylor. look to shareholder us. buybacks Jack we on not we'll book comment risk-adjusted as joining to is factor the on and valuation general potential things for but you into that of at a with in timing past, we've our we'll their attractive our as consideration. is assess the been always that to discount we've

what share our comment toolkit. part on it's that's So of buybacks we can't specifically we'll on but do something

Doug Harter

Last in your kind Can we higher. deck an ROE Great. steps drive can are what of and -- ROE? where give of, quarter of higher had slide those us to where update kind as driving initiatives you of when to are those you some the you achieving in just in,

Marcin Urbaszek

the our Doug. say, that that funding place. that we inefficient Hi, last loan. that as of out resolving term us. some to in legacy it's Obviously, most We piece probably we're Marcin. had to joining remarks, repaid assets. a Good Sure, slide we you on little the Thanks would pace is And for heard in of of non-accrual We list morning. slower. a think I taking has say the some of vehicles. I considering refinanced prepared the taken continue us work bit measured originations

So we've accomplished a lot.

from from We happen going it from these a we the forward then higher potentially of it end assets, year to benefiting the bit whether as go just of by can and well. and depends whole rates going really on we the which more depends when portfolio resolve have the and it little growing expect to delevering

Doug Harter

Great. Marcin. Thanks,

Operator

Delaney ahead. Please The next with JMP come question from will Securities. Steve go

Steve Delaney

morning, taking Thanks the for question. Good everyone.

occupancy little tenant stage of give Diego how and little -- Sort loan positioned San thing? -- in late stage color mix? that renovation of what market? the is was you. And situation Kind us what office property XXXX? that in more Thank of the about could it it XXXX On of the of kind a a loan of is any type just the a you terms

Steve Alpart

It's Alpart. Hey, Steve. Good joining. morning. for Steve Thanks

Steve Delaney

Yes.

Steve Alpart

I'll just So go here. kind of

on San itself Diego during the been has It's market. quarter. It's slow call property. that well mentioned the office we risk impacted building A this on a we CBD to the the as renovated So The lot the leasing by ranking downgraded Class very located. recently It's to five asset in CBD. of a is like

currently conversations took prepared we placed property leasing has The been of the of mentioned status been have the reserve sponsor loan significant marketing mentioned. for with the business mentioned the So of in we remarks, process. ongoing the with but constructive monitor as process They equity we're in that that plan the as active a I as and portion is communicate I million. also the the it $X.X reasons sponsor. amount mentioned complete, on I I in asset-specific the we and in said CapEx We've the borrower that of that in property. non-accrual call of the kind is dialogue

Steve Delaney

Okay. helpful. Great. That's

I than go, then sounds and this And I'm who any situation that's appreciate just it to that, helpful color. value-add So have want you you probably but don't borrower I comment -- at like further it. to that's sorry ahead. think the a point do was somewhat positive and

Steve Alpart

No go ahead.

Steve Delaney

two CLOs? referred to The to those -- referring the year X.X And had whether they reinvestment you me CLOs financing reworking Thanks. of XXXX inefficient vehicles were Okay. X remind when or you year periods? two

Marcin Urbaszek

joining Hi, Steve, you the question. for us it's Marcin. for and Thank thanks

from FLX term the the facilities that So, two legacy we refinanced That XXXX first in was quarter. facility. financing the then we earlier had and

those of we So took two. care

ended. has active. which so static looking period XXXX FLX, the a refi and the And That some FLX reinvestment two-year period, have managed that which -- is we a We the legacy, two-year was it's deal FLX still is point. had the are potentially at to XXXX a which

Steve Delaney

okay. static, Three Okay.

you one one So open CLO. active have

Marcin Urbaszek

Correct.

Steve Delaney

comes to invested? reinvest next You quarters, like material to not – -- the that cash CLO. as loan that keep any know I have available, to it obviously, sounds CLO fully you'll in couple that plan you're would attempt you but going of CLO keep over growth

Marcin Urbaszek

goal. our that's Yes,

Steve Delaney

the for Okay. comments. Good. Well, Appreciate thanks it.

Marcin Urbaszek

you. Thank

Operator

next question will Raymond Please with ahead. go James. Instructions] Stephen from [Operator Laws Our come

Stephen Laws

morning. Hi. Good

You of -- of sort a this a bit touched of but follow-up. on couple little a already,

being origination or year of about that on originations as prepared mentioned reasons you maybe Is the are liquidity, this front? other [indiscernible] to resolving conditions at it aggressive what kind two think loans year more do later kind versus I up two in later to take there? looking leverage back free you think you the to are looking market really improving of versus for? or liquidity the what you about remarks, think As this you buybacks up considerations and

Jack Taylor

will you far of uses against pretty your this upon so analysis overall it. from Good buyback. subsequent the uses a commented goes it and this of lenders Stephen, The to be cost-benefit other it's the also highly Hi of you now for thank market on stabilize and structure liquidity Jack bear Resolution favor in loans going the hear -- from It's dependent events question. function upon Taylor. conditions. I structure even We of good not then even share once would lenders I loans -- markets do pretty lend say, determinative been of earlier with, of That's better environment our be factors a more does though that on good terms analysis. the it, the into for conservative believe one liquidity. it to has structure forward. will better in many market of but a is

Stephen Laws

from the the think as projects of about half slowdown seasons in the unfunded through move But think with we'll What their these in the unfunded do year? portfolio we added. how expect maybe drawdowns plans? and less type -- back about of drawdowns do we the kind commitments originations As see slower you commitments of the

Jack Taylor

so, month of around expect -- around has more lower bit the actual of number the it next size and years decreased trend future we funding a and the over a several running We've $XX $XX million for or has been been pool but at million running a little to quarters.

Stephen Laws

Appreciate Great. morning. comments this your

Jack Taylor

Thank you, Steve.

Operator

question-and-answer our Taylor I like Jack for session. Please concludes Mr. remarks. go any to ahead. back the conference to This would over turn closing

Jack Taylor

you your operator, good much, to you call these and also, I soon. with to times of our continuing to our look very wish you all for I'd like We support Thank joining you thank today. for during And thank like would health forward you business. of we speaking and continuing

Operator

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

may now You disconnect.

Granite Point Mortgage Trust (GPMT) 9 Aug 222022 Q2 Earnings call transcript